Question

Coax Corporations is considering a project that will pay nothing for the first three years, $80,000...

Coax Corporations is considering a project that will pay nothing for the first three years, $80,000 in the fourth year, $120,000 in the fifth year, and $160,000 in the sixth year. The appropriate discount rate is 8.8%, and the project requires an immediate investment of $150,000 if we accept the project.

The NPV of this project is Select one: a. $149,135. b. $124,939. c. $94,901. d. $82,263.

Please show step by step calculations and provide explanations.*No Excel

Homework Answers

Answer #1

Net present value can be solved using a financial calculator. The steps to solve on the financial calculator:

  • Press the CF button.
  • CF0= -$150,000. Indicate the initial cash flow by a negative sign since it is a cash outflow.  
  • Cash flow for each year should be entered.
  • Press Enter and down arrow after inputting each cash flow.
  • After entering the last cash flow cash flow, press the NPV button and enter the discount rate of 8.8%.
  • Press enter after that. Press the down arrow and CPT buttons to get the net present value.  

Net present value at 8.8% discount rate is $82,262.99 $82,263.

Hence, the answer is option d.

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