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sladkih [1.3K]
3 years ago
10

Exercise 11-2 Net present value LO P3 Beyer Company is considering the purchase of an asset for $180,000. It is expected to prod

uce the following net cash flows. The cash flows occur evenly within each year. Assume that Beyer requires a 10% return on its investments. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.) Year 1 Year 2 Year 3 Year 4 Year 5 Total Net cash flows $ 60,000 $ 40,000 $ 70,000 $ 125,000 $ 35,000 $ 330,000 a. Compute the net present value of this investment. b. Should Beyer accept the investment?
Business
1 answer:
tia_tia [17]3 years ago
5 0

Answer:

NPV = $67,304.27

Beyer should accept the investment

Explanation:

The net present value is the present value of after tax cash flows from an investment less the amount invested.

NPV can be calculated using a financial calculator

Cash flow in year 0 = $-180,000

Cash flow in year 1 = $60,000

Cash flow in year 2 =$40,000

Cash flow in year 3 =$70,000

Cash flow in year 4 = $125,000

Cash flow in year 5 = $35,000

I = 10%

NPV = $67,304.27

A project should be accepted if its npv is postive. Since the NPV of this project is postive, the project should be accepted.

To find the NPV using a financial calacutor:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. After inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.

3. Press compute

I hope my answer helps you

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Given the following two potential locations to construct an urgent care, use incremental B/C ratio to determine which location,
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The incremental benefit cost ratio is less than 1 therefore we must select site 1.

Explanation:

The incremental BCR can be determined using the following formula

\Delta BC_R = \frac{AW_B-AW_D-AW_M}{AW_i}

AW_C=1,000,000(A/P, 8% , 10)

⇒ AW_C= 1,000,000 \times \frac{0.08}{1-1.08^-^1^0}

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= $ 54,674.93

Incremental benefits = 580,000 - 520,000 = 60,000

Incremental O&M = 75,000 - 80,000 = - $ 5000

Incremental Disbenefits = 140,000 - 90,000 =$ 50,000

\Delta BC_R = \frac{60,000-50,000-(-5000)}{54,674.93} \\\\\Delta BC_R=0.2743

All solving using the present worth method also incremental benefit cost ratio comes out to be 0.2743.

The incremental benefit cost ratio is less than 1 therefore we must select site 1.

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The yield of maturity for this bond is "8.4 percent".
We can calculate this in the following way;
<span>Yield to maturity = YTM = {($1,000 x .06) + [($1,000 - 900)/5]}/[($900 + $1,000)/2]
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= 8.4 percent</span>
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