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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:012345
Cash flow:–$2,900$650$780$820$900$400

NPV:

Should the project be accepted or rejected?

  • rejected

  • accepted

Solutions

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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