Question

# Net present value. Quark Industries has a project with the following projected cash​ flows: Initial​ cost:...

Net present value. Quark Industries has a project with the following projected cash​ flows: Initial​ cost: ​\$200,000 Cash flow year​ one: ​\$23,000 Cash flow year​ two: ​\$72,000 Cash flow year​ three: ​\$157,000 Cash flow year​ four: ​\$157,000 a.  Using a discount rate of 10​% for this project and the NPV​ model, determine whether the company should accept or reject this project. b.  Should the company accept or reject it using a discount rate of 14​%? c.  Should the company accept or reject it using a discount rate of 20​%?

Cash Flows:
Year 0 = -\$200,000
Year 1 = \$23,000
Year 2 = \$72,000
Year 3 = \$157,000
Year 4 = \$157,000

Discount Rate = 10%

NPV = -\$200,000 + \$23,000/1.10 + \$72,000/1.10^2 + \$157,000/1.10^3 + \$157,000/1.10^4
NPV = \$105,602.76

Company should accept this project as NPV is positive.

Discount Rate = 14%

NPV = -\$200,000 + \$23,000/1.14 + \$72,000/1.14^2 + \$157,000/1.14^3 + \$157,000/1.14^4
NPV = \$74,504.23

Company should accept this project as NPV is positive.

Discount Rate = 20%

NPV = -\$200,000 + \$23,000/1.20 + \$72,000/1.20^2 + \$157,000/1.20^3 + \$157,000/1.20^4
NPV = \$35,736.88

Company should accept this project as NPV is positive.