Question

A firm evaluates all of its projects by applying the NPV decision rule. A project under consideration has the following cash flows:

Year	Cash Flow
0	–$	34,000
1		15,000
2		17,000
3		13,000

What is the NPV of the project if the required return is 11 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

At a required return of 11 percent, should the firm accept this project?

• Yes

• No

What is the NPV of the project if the required return is 24 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.)

At a required return of 24 percent, should the firm accept this project?  

• Yes

• No

Answer 1

Present Value = Future value/ ((1+r)^t)
where r is the interest rate that is 11% and t is the time period in years.
Net present value (NPV) = initial investment + sum of present values of future cash flows.
Year	0	1	2	3
cash flow	-34000	15000	17000	13000
present value		13513.51	13797.58	9505.488
NPV	2816.583
The NPV is $2816.583.
Since the NPV is greater than zero, the project should be accepted.
The reason is that the present value of future cash flows is greater
than the initial investment.
At a required return of 11 percent, should the firm accept this project?
YES.
Present Value = Future value/ ((1+r)^t)
where r is the interest rate that is 24% and t is the time period in years.
Net present value (NPV) = initial investment + sum of present values of future cash flows.
Year	0	1	2	3
cash flow	-34000	15000	17000	13000
present value		12096.77	11056.19	6818.334
NPV	-4028.7
The NPV is -$4028.7
Since the NPV is less than zero, the project should not be accepted.
The reason is that the present value of future cash flows is less
than the initial investment.
At a required return of 24 percent, should the firm accept this project?
NO.