Question

For the following set of cash flows,

  

Year	Cash Flow
0	–$9,700
1	4,100
2	3,400
3	4,400

  

a. What is the NPV at a discount rate of 0 percent?

• 2,200.00
• $2,266.00
• $2,310.00
• $2,090.00
• $2,134.00

  

b. What is the NPV at a discount rate of 15 percent?

• $-670.82
• $-690.95
• $-704.36
• $-637.28
• $-650.70

  

c. What is the NPV at a discount rate of 23 percent?

• $-1,754.84
• $-1,807.48
• $-1,842.58
• $-1,667.10
• $-1,702.19

d. What is the NPV at a discount rate of 28 percent?

• $-2,323.60
• $-2,393.30
• $-2,439.78
• $-2,207.42
• $-2,253.89

Answer 1

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

=4100+3400+4400=$11900

NPV=Present value of inflows-Present value of outflows

=11900-9700

=$2200

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

=4100/1.15+3400/1.15^2+4400/1.15^3

=$9029.18

NPV=Present value of inflows-Present value of outflows

=9029.18-9700

=$-670.82(Approx)(Negative)

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

=4100/1.23+3400/1.23^2+4400/1.23^3

=$7945.16

NPV=Present value of inflows-Present value of outflows

=7945.16-9700

=$-1754.84(Approx)(Negative)

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

=4100/1.28+3400/1.28^2+4400/1.28^3

=$7376.40

NPV=Present value of inflows-Present value of outflows

=7376.40-9700

=$-2323.6(Approx)(Negative)