Compute the NPV for Project M if the appropriate cost of capitalis 8 percent. (Negative...

Compute the NPV for Project M if the appropriate cost of capital is 8 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 M
Time:	0	1	2	3	4	5
Cash flow:	–$2,900	$650	$780	$820	$900	$400

NPV:

Should the project be accepted or rejected?

rejected
accepted

Expert Solution

- Computing the Net Present value(NPV) for Project M:-

Year	Cash Flow of Project M ($) (a)	PV Factor @8% (b)	Present Value of Proj ect M ($) *(a)(b)**
0	(2,900.00)	1.00000	(2,900.0)
1	650.00	0.92593	601.852
2	780.00	0.85734	668.724
3	820.00	0.79383	650.942
4	900.00	0.73503	661.527
5	400.00	0.68058	272.233
			(44.72)

So, NPV for Project M is -$44.72

- As the NPV for Project M is negative the Project should not be accepted as it will provide negative returns.

Thus, it should be Rejected

Note- PV Factor@8% can be taken from PVAF Table or calculated using this formula which is = 1/(1+0.08)^n

where, n = Respective year.

For example, PV Factor@8% of 2nd year = 1/(1+0.08)^2 = 1/1.1664 = 0.85734

jeff jeffy answered 2 years ago

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