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? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

NPV

$

Requirement 2:

At a required return of 18 percent, what is the NPV of the project? (Do not round intermediate calculations. A negative amount should be indicated by a minus sign. Round your answer to 2 decimal places (e.g., 32.16).)

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).