Question

In: Finance

You are offered the chance to participate in a project that produces the following cash flows:...

You are offered the chance to participate in a project that produces the following cash flows:

C0 C1 C2
+ $ 5,900 + $ 4,450 − $ 12,800

The internal rate of return is 14.3%.

a. If the opportunity cost of capital is 13%, what is the net present value of the project? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.)

b. Will you accept the offer?

Solutions

Expert Solution

Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

=5900+4450/1.13

=9838.05

Present value of outflows=12800/1.13^2

=10024.28

NPV=Present value of inflows-Present value of outflows  

=9838.05-10024.28

=$-186.22(Approx)(Negative)

Hence since NPV is negative;offer must not be accepted

jeff jeffy answered 2 years ago
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