Question

For the given cash flows, suppose the firm uses the NPV decision rule.
  

Year	Cash Flow
0	–$	150,000
1		66,000
2		73,000
3		57,000

At a required return of 10 percent, what is the NPV of the project? (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, what is the NPV of the project? (A negative answer 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            $

Answer 1

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

At 10%:

Present value of inflows=66000/1.1+73000/1.1^2+57000/1.1^3

=$163155.52

NPV=Present value of inflows-Present value of outflows

=$163155.52-$150000

=$13155.52(Approx).

At 20%:

Present value of inflows=66000/1.2+73000/1.2^2+57000/1.2^3

=$138680.56

NPV=Present value of inflows-Present value of outflows

  =$138680.56-$150000

=$(11319.44)(Approx).(Negative).