Question

For the given cash flows, suppose the firm uses the NPV decision rule.
  

Year	Cash Flow
0	–$	160,000
1		56,000
2		83,000
3		67,000

At a required return of 9 percent, what is the NPV of the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
  
NPV            $

At a required return of 18 percent, what is the NPV of the project? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
  
NPV            $

Answer 1

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

At 9%:

Present value of inflows=56000/1.09+83000/1.09^2+67000/1.09^3

=$172971.88

NPV=Present value of inflows-Present value of outflows

=$172971.88-$160,000

  =$12971.88(Approx)

At 18%:

Present value of inflows=56000/1.18+83000/1.18^2+67000/1.18^3

=$147845.20

NPV=Present value of inflows-Present value of outflows

=$147845.20-$160,000

  =$(12154.80)(Approx)(Negative).