Question

Consider the following cash flows: Year Cash Flow 0 –$ 34,000   1 15,100   2 16,600   3...

Consider the following cash flows:
Year Cash Flow
0 –$ 34,000  
1 15,100  
2 16,600  
3 12,500  
a.

What is the NPV at a discount rate of zero percent? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

b. What is the NPV at a discount rate of 8 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
c. What is the NPV at a discount rate of 18 percent? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
d. What is the NPV at a discount rate of 28 percent? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Homework Answers

Answer #1

The NPV is computed as shown below:

= Initial investment + Present value of future cash flows

Present value is computed as follows:

= Future value / (1 + r)n

a. The NPV is computed as follows:

= - $ 34,000 + $ 15,100 + $ 16,600 + $ 12,500

= $ 10,200

b. The NPV is computed as follows:

= - $ 34,000 + $ 15,100 / 1.08 + $ 16,600 / 1.082 + $ 12,500 / 1.083

= $ 4,136.21 Approximately

c. The NPV is computed as follows:

= - $ 34,000 + $ 15,100 / 1.18 + $ 16,600 / 1.182 + $ 12,500 / 1.183

= - $ 1,673.64 Approximately

d. The NPV is computed as follows:

= - $ 34,000 + $ 15,100 / 1.28 + $ 16,600 / 1.282 + $ 12,500 / 1.283

= - $ 6,110.82 Approximately

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