| 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 |
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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