Question

For the given cash flows, suppose the firm uses the NPV decision rule. Year Cash Flow...

For the given cash flows, suppose the firm uses the NPV decision rule.
Year Cash Flow
0 –$ 153,000      
1 78,000      
2 67,000      
3 49,000      
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   $
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Homework Answers

Answer #1

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

=78000/1.09+67000/1.09^2+49000/1.09^3

=$165,789.18

NPV=Present value of inflows-Present value of outflows

=$165,789.18-$153000

=$12,789.18(Approx).

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

=78000/1.21+67000/1.21^2+49000/1.21^3

=$137,883.93

NPV=Present value of inflows-Present value of outflows

=$137,883.93-$153000

=$(15116.07)(Approx).(Negative).

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