| A firm evaluates all of its projects by using the NPV decision rule. |
| Year | Cash Flow | ||
| 0 | –$29,000 | ||
| 1 | 20,000 | ||
| 2 | 14,000 | ||
| 3 | 10,000 | ||
| a. At a required return of 19 percent, what is the NPV for this project? |
| b. At a required return of 34 percent, what is the NPV for this project? |
a.Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)
=20,000/1.19+14000/1.19^2+10,000/1.19^3
=32627.19
NPV=Present value of inflows-Present value of outflows
=32627.19-29000
=$3627.19(Approx).
b.Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)
=20,000/1.34+14000/1.34^2+10,000/1.34^3
=26878.31
NPV=Present value of inflows-Present value of outflows
=26878.31-29000
=-2121.69(Approx).(Negative)
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