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A firm evaluates all of its projects by using the NPV decision rule.    Year                 Cash...

A firm evaluates all of its projects by using the NPV decision rule.

  

Year                 Cash Flow
0 –$26,000      
1 21,000      
2 15,000      
3 7,000      

  

a. At a required return of 23 percent, what is the NPV for this project?

  

b. At a required return of 36 percent, what is the NPV for this project?
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Homework Answers

Answer #1

a.Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

=21000/1.23+15000/1.23^2+7000/1.23^3

=$30749.59

NPV=Present value of inflows-Present value of outflows

=$30749.59-$26000

=$4749.59(Approx).

b.Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

=21000/1.36+15000/1.36^2+7000/1.36^3

=$26,333.83

NPV=Present value of inflows-Present value of outflows

=$26,333.83-$26000

=$333.83(Approx).

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