Question

Star City is considering an investment in the community center that is expected to return the...

Star City is considering an investment in the community center that is expected to return the following cash flows. Use Exhibit A.8.

Year Net Cash Flow
1 $ 34,000
2 64,000
3 94,000
4 94,000
5 114,000

This schedule includes all cash inflows from the project, which will also require an immediate $214,000 cash outlay. The city is tax-exempt; therefore, taxes need not be considered.

Required:

a. What is the net present value of the project if the appropriate discount rate is 24 percent?

b. What is the net present value of the project if the appropriate discount rate is 14 percent?

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