Question

A firm evaluates all of its projects by applying the NPV decision rule. A project under consideration has the following cash flows: Year Cash Flows

0 (-4072)

1 (1750)

2 (1632)

3 (1537)

What is the NPV for the project if the required return is 25 percent? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Answer 1

Net present value is solved using a financial calculator. The steps to solve on the financial calculator:

• Press the CF button.
• CF0= -$4,072. It is entered with a negative sign since it is a cash outflow.
• Cash flow for the three year should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow cash flow, press the NPV button and enter the required return of 25%.
• Press enter after that. Press the down arrow and CPT buttons to get the net present value.

Net present value of cash flows at 25% required return is -$7,303.42.

In case of any further queries, kindly comment on the solution.