Question

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 –$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?

Homework Answers

Answer #1

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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