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Assume an investment has cash flows of -$42,100, $22,650, $18,950, and $12,100 for Years 0 to...

Assume an investment has cash flows of -$42,100, $22,650, $18,950, and $12,100 for Years 0 to 3, respectively. What is the NPV if the required return is 15.6 percent? Should the project be accepted or rejected? Multiple Choice -$493.30; reject -$1,084.22; reject $1,084.22; accept $1,210.80; accept $493.30; accept

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Homework Answers

Answer #1

Answer is -493.30 : reject.

NPV = Present value of cash inflows - Initial investment

Initial investment = - $ 42,100

Cash inflows

year 1 = $ 22,650

year 2 = $18.950

year 3 = $ 12,100

Present value of cash inflows :-  

Years CF [email protected]% PV of CF
1 22,650 0.8650519 19593.43
2 18950 0.7483148 14180.57
3 12100 0.64733114 7832.707
PV of Cash inflows 41606.698

NPV = $ 41,606.698 - 42,100 = - $ 493.302

Here NPV is negative so, we Reject the project

Here Option A is correct.

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