Question

Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 13 percent, and that the maximum allowable payback and discounted payback statistics for your company are 2.5 and 3.0 years, respectively.

Time:	0	1	2	3	4	5
Cash flow:	–$364,000	$64,900	$83,100	$140,100	$121,100	$80,300

Use the NPV decision rule to evaluate this project. (Do not round intermediate calculations and round your final answer to 2 decimal places.)

Answer 1

Ans NPV = -$ 26534.03

Reject the project since NPV is negative.

Year	Project Cash Flows (i)	DF@ 13%	DF@ 13% (ii)	PV of Project ( (i) * (ii) )
0	-364000	1	1	(3,64,000.00)
1	64900	1/((1+13%)^1)	0.885	57,433.63
2	83100	1/((1+13%)^2)	0.783	65,079.49
3	140100	1/((1+13%)^3)	0.693	97,096.33
4	121100	1/((1+13%)^4)	0.613	74,272.90
5	80300	1/((1+13%)^5)	0.543	43,583.62
		NPV		(26,534.03)