Question

For the following set of cash flows, year,0,1,2,3,cash flow,-8,000,6,700,6,800,6,100(a) what is the NPV at a discount...

For the following set of cash flows, year,0,1,2,3,cash flow,-8,000,6,700,6,800,6,100(a) what is the NPV at a discount rate of 0 percent?(b) what is the NPV at a discount rate of 12 percent? (C) what is the NPV at a discount rate of 18 percent? (D) what is the NPV at a discount rate of 23 percent?

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Homework Answers

Answer #1

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

=6,700+6,800+6,100

=$19600

NPV=Present value of inflows-Present value of outflows

=19600-8,000

=$11600

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

=6,700/1.12+6,800/1.12^2+6,100/1.12^3

=$15744.92

NPV=Present value of inflows-Present value of outflows

=15744.92-8,000

=$7744.92(Approx)

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

=6,700/1.18+6,800/1.18^2+6,100/1.18^3

=$14274.27

NPV=Present value of inflows-Present value of outflows

=14274.27-8,000

=$6274.27(Approx)

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

=6,700/1.23+6,800/1.23^2+6,100/1.23^3

=$13219.88

NPV=Present value of inflows-Present value of outflows

=13219.88-8,000

=$5219.88(Approx)

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