Question

In: Finance

Compute the NPV for Project K if the appropriate cost of capital is 7 percent. (Negative...

Compute the NPV for Project K if the appropriate cost of capital is 7 percent. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your final answer to 2 decimal places.)

Project K
Time: 0 1 2 3 4 5
Cash flow: −$11,600 $5,800 $6,800 $6,800 $5,800 −$14,600



Should the project be accepted or rejected?

  • rejected

  • accepted

Solutions

Expert Solution

NPV :
NPV = PV of Cash Inflows - PV of Cash Outflows
If NPV > 0 , Project can be accepted
NPV = 0 , Indifference point. Project can be accepted/ Rejected.
NPV < 0 , Project will be rejected.

Cash Flows for 5 Years
Year CF PVF @0.07 Disc CF
0 $ -11,600.00     1.0000 $ -11,600.00
1 $    5,800.00     0.9346 $    5,420.56
2 $    6,800.00     0.8734 $    5,939.38
3 $    6,800.00     0.8163 $    5,550.83
4 $    5,800.00     0.7629 $    4,424.79
5 $ -14,600.00     0.7130 $ -10,409.60
NPV $      -674.04

As NPV is -ve, Reject the Project.

Pls do rate, if the answer is correct and comment, if any further assistance is required.


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