Question

You are offered the chance to participate in a project that produces the following cash flows:

	C0				C1				C2
	+	$	6,500		+	$	4,750		−	$	14,000

The internal rate of return is 14.7%.

If the opportunity cost of capital is 14%, what is the net present value of the project? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.)

Net present value

$

Will you accept the offer?

	Yes
	No

Answer 1

Net present value is solved using a financial calculator. The steps to solve on the financial calculator:

• Press the CF button.
• CF0= $6,500.
• Cash flow for all the years should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow, press the NPV button and enter the opportunity cost of capital of 14%.
• Press the down arrow and CPT buttons to get the net present value.

Net Present value of cash flows at 14% opportunity cost of capital is -$105.88

The offer should not be accepted since it generates a negative net present value.

In case of any query, kindly comment on the solution.