Answer:
a) Net Present Value = $ 304,495.12
b) Beyer should accept the investment.
Explanation:
The net present value NPV) of a project is the present value of cash inflow less the present value of cash outflow of the project.
NPV = PV of cash inflow - PV of cash outflow
Year PV
1 77,000 × 1.12^(-1) = 68,750.00
2 54,000 × 1.12^(-2) = 43,048.47
3 82,000 × 1.12^(-3) = 58,365.98
4 172,000 × 1.12^(-4) = 109,309.11
5 423,000 × 1.12^(-5)= <u>240,021.56 </u>
Total Present Value 519,495.12
Initial cost <u>(215,000)</u>
Net Present Value <u>304,495.12 </u>
Net Present Value = $ 304,495.12
b) Decision :
Beyer should accept the investment. This will increase the wealth of the shareholders by $ 304,495.12
