Question

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?

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