Question

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

Answer 1

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