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

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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