Question

A firm evaluates all of its projects by using the NPV decision rule.    Year                 Cash...

A firm evaluates all of its projects by using the NPV decision rule.

  

Year                 Cash Flow
0 –$27,000      
1 20,000      
2 16,000      
3 7,000      

  

Required:
(a) At a required return of 21 percent, what is the NPV for this project?

(Click to select)4,232.12

4,320.29

4,628.88

,408.464

4496.63

  

(b) At a required return of 34 percent, what is the NPV for this project?

(Click to select)

-259.78

-267.42

-244.5

-254.69

-249.6
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Homework Answers

Answer #1

1.Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)
=20000/1.21+16000/1.21^2+7000/1.21^3

=$31408.46

NPV=Present value of inflows-Present value of outflows

=$31408.46-$27000

=$4408.46(Approx).

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

=20000/1.34+16000/1.34^2+7000/1.34^3

=$26745.31

NPV=Present value of inflows-Present value of outflows

=$26745.31-$27000

=$(254.69)(Approx).(Negative).

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