Question

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

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

Year (Cash Flow) Y0 (–$27,000) Y1 (22,000) Y2 (14,000) Y3 (8,000)

a. At a required return of 26 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
a.
Year Cash flow Discounting factory @ 26% Present value
0 -27000 1 -27000.00
1 22000 0.793650794 17460.32
2 14000 0.629881582 8818.34
3 8000 0.499906018 3999.25
NPV 3277.91
b.
Year Cash flow Discounting factory @ 32% Present value
0 -27000 1 -27000.00
1 22000 0.757575758 16666.67
2 14000 0.573921028 8034.89
3 8000 0.434788658 3478.31
NPV 1179.87
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