Question

In: Finance

Suppose your firm is considering investing in a project with the cash flows shown below, that...

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 11 percent, and that the maximum allowable payback and discounted payback statistic for the project are 2 and 3 years, respectively.

  Time 0 1 2 3 4 5 6
  Cash Flow -990 190 410 610 610 210

610


Use the NPV decision rule to evaluate this project; should it be accepted or rejected?

Solutions

Expert Solution

NPV@ 0.11
Year Cash flow PV factor PV-Cash flow
0                        (990) 1.000          (990)
1                          190 0.901            171
2                          410 0.812            333
3                          610 0.731            446
4                          610 0.659            402
5                          210 0.593            125
6                          610 0.535            326
NPV            813
NPV                      813
Since NPV is positive, the project can be accepted

jeff jeffy answered 2 years ago
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