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?
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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