Question

Drinkable Water System is analyzing a project with project cash inflows of $137,000, $189,300, and -$25,000 for 1 to 3, respectively. The project cost $236,000 and has been assigned a discounted rate of 14 percent. Should this project be accepted based on the discounting approach to the modified internal rate or return? Why or why not?

Answer 1

NPV of the Project Based on the Discounting Approach to the modified internal rate or return

=Discounted Cash Flow for Year 1+Discounted Cash Flow for Year 2+Discounted Cash Flow for Year 3 - Project Cost

= [$ 137,000 * (1/1.14¹)] + [$ 189,300 * (1/1.14²)] + [ - $ 25,000 * (1/1.14³)] - $ 236,000

= [ $ 137,000 * 0.8772] + [ $ 189,300 * 0.7695] + [ - $ 25,000 * 0.6750] - $ 236,000

= $ 120,176.40 + $ 145,666.35 - $ 16,875 - $ 236,000

= $ 12,968.75

On The basis of the NPV teh Projecte should be accepted because it has positive NPV of $ 12,968.75 at the assigned discounted rate of 14%.