In: Finance
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? |
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 |