Question

For the following set of cash flows,    Year Cash Flow 0 –$7,300            1 6,500...

For the following set of cash flows,

  

Year Cash Flow
0 –$7,300           
1 6,500           
2 5,200           
3 6,700           

  

Required:
(a) What is the NPV at a discount rate of 0 percent?
(b) What is the NPV at a discount rate of 14 percent?
(c)

Whatis the NPV at a discount rate of 21 percent?
(d) What is the NPV at a discount rate of 26 percent?
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Homework Answers

Answer #1

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

At 0%:

Present value of inflows=6500+5200+6700=$18400

NPV=Present value of inflows-Present value of outflows

=(18400-7300)=$11100

At 14:

Present value of inflows=6500/1.14+5200/1.14^2+6700/1.14^3

=$14225.29

NPV =$14225.29-$7300

=$6925.29(Approx).

At 21:

Present value of inflows=6500/1.21+5200/1.21^2+6700/1.21^3

=$12705.55

NPV =$12705.55-$7300

=$5405.55(Approx).

At 26:

Present value of inflows=6500/1.26+5200/1.26^2+6700/1.26^3

=$11783.48

NPV  =$11783.48-$7300

=$4483.48(Approx).

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