Question

In: Finance

A firm evaluates all of its projects by using the NPV decision rule.    Year                 Cash...

A firm evaluates all of its projects by using the NPV decision rule.

  

Year                 Cash Flow
0 –$28,000      
1 20,000      
2 13,000      
3 4,000      

  

Required:
(a) At a required return of 23 percent, what is the NPV for this project?
(Click to select)  -1,017.48  -997.53  -957.63  -1,047.41  -977.58

  

(b) At a required return of 36 percent, what is the NPV for this project?
(Click to select)  -4,581.89  -4,768.91  -4,909.17  -4,488.39  -4,675.4

Solutions

Expert Solution

Ans a) -997.53

Ans b) -4,675.4

Year Project Cash Flows (i) DF@ 23% DF@ 23% (ii) PV of Project ( (i) * (ii) ) DF@ 36% (iii) PV of Project ( (i) * (iii) )
0 -28000 1 1                          (28,000.00) 1             (28,000.00)
1 20000 1/((1+23%)^1) 0.813008                             16,260.16 0.735               14,705.88
2 13000 1/((1+23%)^2) 0.660982                               8,592.77 0.541                  7,028.55
3 4000 1/((1+23%)^3) 0.537384                               2,149.54 0.398                  1,590.17
NPV                                (997.53) NPV               (4,675.40)

jeff jeffy answered 2 years ago
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