Question

Hello, I am having trouble with this question. I am using the HP 10bii+ calculator. A step by step instructions on using the calculator, not excel, will help me the most. I know the answer, just not how to enter it into the calculator to get the correct answer, i keep getting it wrong. Thank you!

A project that provides annual cash flows of $17,100 for nine years costs $77,000 today.

  

What is the NPV for the project if the required return is 8 percent? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.)

  

NPV

$

  

At a required return of 8 percent, should the firm accept this project?

	Accept
	Reject

  

What is the NPV for the project if the required return is 20 percent? (Negative amount 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

$

At a required return of 20 percent, should the firm accept this project?

	Accept
	Reject

  

At what discount rate would you be indifferent between accepting the project and rejecting it? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Answer 1

1) Here annual cash flow is 17100 for 9 years. and initial cost is 77000$, Thus NPV can be found as follows

NPV = Present value of cash inflow less initial cost

Since 17100$ follows annuity, we shall calculate PV as follows

PV = A[1-1/(1+r)^n /r]

=17100[1-1/(1.08)^9 / 0.08]

=17100[1 - 0.500249/0.08]

=17100[0.499751/0.08]

=17100[6.24688]

=106821.8$

NPV = 106821.8 - 77000 = 29821.78$

2) Since NPV is positive one should accept the project

3) If rate is 20%

PV = 17100[1-1/(1.2)^9 / 0.2]

=17100[1-0.193807 / 0.2]

=17100[0.806193/0.2]

=17100[4.031]

=68929.53$

NPV = 68929.53 -77000 = -8070.47$

4) Since NPV is negatibe project should not be selected

5) Using interpolation method we can find out indifference point

Rate	NPV
8%	29821.78
20%	-8070.47
12%	37892.25
?	29821.78

=29821.78*0.12/37892.25

=9.44%

Thus IRR = 8%+9.44% = 17.44%