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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 –$29,000      
1 22,000      
2 16,000      
3 8,000      

  

a. At a required return of 16 percent, what is the NPV for this project?

  

b. At a required return of 32 percent, what is the NPV for this project?

Solutions

Expert Solution

a. NPV $     6,981.39
Working:
Year Cash flow Discount factor Present value
a b c=1.16^-a d=b*c
0 $       -29,000      1.0000 -29,000.00
1             22,000      0.8621    18,965.52
2             16,000      0.7432    11,890.61
3               8,000      0.6407      5,125.26
NPV $ 6,981.39
b. NPV $         327.71
Working:
Year Cash flow Discount factor Present value
a b c=1.32^-a d=b*c
0 $       -29,000      1.0000 -29,000.00
1             22,000      0.7576    16,666.67
2             16,000      0.5739      9,182.74
3               8,000      0.4348      3,478.31
NPV $      327.71

jeff jeffy answered 9 months ago
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