Question

In: Finance

What is the NPV at a discount rate of zero percent?

A project has the following cash flows:

Year Cash Flow
0 –$ 15,400
1 7,300
2 9,100
3 5,900
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 10 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 20 percent? (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 30 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.)

Solutions

Expert Solution

a.

Discount rate 0.0000%
Cash flows Year Discounted CF= cash flows/(1+rate)^year Cumulative cash flow
           (15,400.000) 0                           (15,400.00)                       (15,400.00)
               7,300.000 1                               7,300.00                          (8,100.00)
               9,100.000 2                               9,100.00                          1,000.000
               5,900.000 3                               5,900.00                            6,900.00

NPV = 6900

b.

Discount rate 10.0000%
Cash flows Year Discounted CF= cash flows/(1+rate)^year Cumulative cash flow
           (15,400.000) 0                           (15,400.00)                       (15,400.00)
               7,300.000 1                               6,636.36                          (8,763.64)
               9,100.000 2                               7,520.66                       (1,242.975)
               5,900.000 3                               4,432.76                            3,189.78

NPV = 3189.78

c.

Discount rate 20.0000%
Cash flows Year Discounted CF= cash flows/(1+rate)^year Cumulative cash flow
           (15,400.000) 0                           (15,400.00)                       (15,400.00)
               7,300.000 1                               6,083.33                          (9,316.67)
               9,100.000 2                               6,319.44                       (2,997.222)
               5,900.000 3                               3,414.35                                417.13

NPV = 417.13

d.

Discount rate 30.0000%
Cash flows Year Discounted CF= cash flows/(1+rate)^year Cumulative cash flow
           (15,400.000) 0                           (15,400.00)                       (15,400.00)
               7,300.000 1                               5,615.38                          (9,784.62)
               9,100.000 2                               5,384.62                       (4,400.000)
               5,900.000 3                               2,685.48                          (1,714.52)

NPV = -1714.52


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