Question

For the given cash flows, suppose the firm uses the NPV decision rule. |

Year | Cash Flow | |

0 | –$ | 156,000 |

1 | 60,000 | |

2 | 79,000 | |

3 | 63,000 | |

Requirement 1: |

At a required return of 10 percent, what is the NPV of the
project? |

NPV | $ |

Requirement 2: |

At a required return of 18 percent, what is the NPV of the
project? |

NPV | $ |

Answer #1

a.Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

=60,000/1.1+79000/1.1^2+63000/1.1^3

=$167167.54

NPV=Present value of inflows-Present value of outflows

=$167167.54-$156000

**=$11167.54(Approx).**

b.Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

=60,000/1.18+79000/1.18^2+63000/1.18^3

=$145927.77

NPV=Present value of inflows-Present value of outflows

=$145927.77-$156000

**=$(10072.23)(Approx).(Negative).**

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