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An investment project cost $13500 ands has annual cash flows of $3900 for 6 years. What...

An investment project cost $13500 ands has annual cash flows of $3900 for 6 years. What if the discounted rate is 0%? What if the discount rate is 7%? If it is 21%
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Answer #1

In this Qn. we have to find Net Present Value of investment project.

If Net present value >0-ten accept the project, if NPV is >0 then reject the project.

here New Investment [P0= $13500]

Annual Cash Inflow for 6 yrs $3900.

three discount factors are- 0%,7% and 21%

Now we find net present value of All cash inflow over 6 yrs.

a. if rate is 0%,then present value of cash inflow will be 0 and NPV of project will be negative { ie. 0- $13500}, so reject the project.

b. if rate is 7%, then present value of cash inflow will be $3900*4.7665=$18589.35, and NPV of project will be $18589.35-$13500=$5089

c.if rate is 21%, then present value of cash inflow will be $3900*3.2446=$12653.94, and NPV of project will be $12653.94-$13500= $(-)846.0.

thus we get loss of investment. @ 21% discount rate.

Ans. .At 7% we get the maximum value of Investment

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