Question

A firm evaluates all of its projects by applying the NPV decision rule. A project under consideration has the following cash flows:

  

Year	Cash Flow
0	–$	27,400
1		11,400
2		14,400
3		10,400

  

What is the NPV for the project if the required return is 12 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

  

NPV

$

  

At a required return of 12 percent, should the firm accept this project?

Yes No

  

What is the NPV for the project if the required return is 24 percent? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

  

NPV

$

  

At a required return of 24 percent, should the firm accept this project?

Yes No

Answer 1

Statement showing Cash flows
Particulars	Time	PVf 12%	Amount	PV
Cash Outflows	-	1.00	(27,400.00)	(27,400.00)
PV of Cash outflows = PVCO				(27,400.00)
Cash inflows	1.00	0.8929	11,400.00	10,178.57
Cash inflows	2.00	0.7972	14,400.00	11,479.59
Cash inflows	3.00	0.7118	10,400.00	7,402.51
PV of Cash Inflows =PVCI				29,060.68
NPV= PVCI - PVCO				1,660.68
Yes firm should accept project as NPV is positive
Statement showing Cash flows
Particulars	Time	PVf 24%	Amount	PV
Cash Outflows	-	1.00	(27,400.00)	(27,400.00)
PV of Cash outflows = PVCO				(27,400.00)
Cash inflows	1.00	0.8065	11,400.00	9,193.55
Cash inflows	2.00	0.6504	14,400.00	9,365.24
Cash inflows	3.00	0.5245	10,400.00	5,454.67
PV of Cash Inflows =PVCI				24,013.46
NPV= PVCI - PVCO				(3,386.54)
No firm should accept project as NPV is negative