Question

A firms evaluates all of its projects by using the NPV decision rule. Year,0,1,2,3,cash flow -30,000,20,000,13,000,5,000.(a) at a required return of 17 percent, what is the NPV for this project? (B) at a required return of 37 percent, what is the NPV for this project?

Answer 1

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

=20,000/1.17+13000/1.17^2+5000/1.17^3

=29712.55

NPV=Present value of inflows-Present value of outflows

=29712.55-30,000

=$-287.45(Approx)(Negative)

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

=20,000/1.37+13000/1.37^2+5000/1.37^3

=23469.36

NPV=Present value of inflows-Present value of outflows

=23469.36-30,000

=$-6530.64(Approx)(Negative)