| A firm evaluates all of its projects by using the NPV decision rule. |
| Year | Cash Flow | ||
| 0 | –$31,000 | ||
| 1 | 20,000 | ||
| 2 | 15,000 | ||
| 3 | 8,000 | ||
| a. At a required return of 12 percent, what is the NPV for this project? |
| b. At a required return of 32 percent, what is the NPV for this project? |
Hello Sir/ Mam
(a) NPV @12% = $4,509.29
| Time | Cashflows | PVF | PV |
| 0 | -$31,000.00 | 1.000000 | -$31,000.00 |
| 1 | $20,000.00 | 0.892857 | $17,857.14 |
| 2 | $15,000.00 | 0.797194 | $11,957.91 |
| 3 | $8,000.00 | 0.711780 | $5,694.24 |
| NPV @12% | $4,509.29 |
Accept the project
(b) NPV @ 32% = -$3,761.36
| Time | Cashflows | PVF | PV |
| 0 | -$31,000.00 | 1.000000 | -$31,000.00 |
| 1 | $20,000.00 | 0.757576 | $15,151.52 |
| 2 | $15,000.00 | 0.573921 | $8,608.82 |
| 3 | $8,000.00 | 0.434789 | $3,478.31 |
| NPV @32% | -$3,761.36 |
Reject the project.
I hope this solves your doubt.
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