Question

For the given cash flows, suppose the firm uses the NPV decision rule. Year Cash Flow 0 –$ 153,000 1 87,000 2 76,000 3 46,000 Requirement 1: At a required return of 9 percent, what is the NPV of the project? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) NPV $ Requirement 2: At a required return of 21 percent, what is the NPV of the project? (Do not round intermediate calculations. Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places (e.g., 32.16).) NPV $

Answer #1

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

=87000/1.09+76000/1.09^2+46000/1.09^3

=$179,304.63

NPV=Present value of inflows-Present value of outflows

=$179,304.63-$153000

**=$26,304.63(Approx).**

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

=87000/1.21+76000/1.21^2+46000/1.21^3

=$149775.65

NPV=Present value of inflows-Present value of outflows

=$149775.65-$153000

**=$(3224.35)(Approx).(Negative).**

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