Question

A firm evaluates all of its projects by using the NPV decision rule Year Cash Flow...


A firm evaluates all of its projects by using the NPV decision rule

Year Cash Flow

0 -31,000
1 23,000
2 13,000
3 11,000

At a required return of 17 percent, what is the NPV for this project?

  • 5,023
  • $5,274
  • $4,822
  • $5,123
  • $4,922

b. At a required return of 34 percent, what is the NPV for this project?

  • $-2,125.40
  • $-1,943.23
  • $-2,064.68
  • $-1,983.71
  • $-2,024.20
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Homework Answers

Answer #1

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

=23000/1.17+13000/1.17^2+11000/1.17^3

=36022.87

NPV=Present value of inflows-Present value of outflows

=36022.87-31000

=$5023(Approx)

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

=23000/1.34+13000/1.34^2+11000/1.34^3

=28975.80

NPV=Present value of inflows-Present value of outflows

=28975.80-31000

=$-2024.2(Approx)(Negative)

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