Asset Purchase Price
Response to the following problem:
BWP, Inc., is considering the purchase of an asset. BWP's required rate of return on new assets is 12%. The expected net cash inflows generated by the new asset are as follows:
Years Amount Nature of the Cash Inflows
1-4 $3,000 Net operating revenues
5-9 2,500 Net operating revenues
10 2,000 Net operating revenues
10 1,000 Sale of asset
Required
Given that the net cash inflows can be realized, what is the maximum amount BWP should be willing to pay for the new asset? Assume that each cash inflow occurs at the end of the year.