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

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?
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Homework Answers

Answer #1

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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