Question
In: Finance
A firm evaluates all of its projects by applying the NPV decision rule. A project under...
|
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? | ||||
|
|
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? | ||||
|
Solutions
Expert Solution
| 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 | ||||
jeff jeffy answered 1 year agoRelated Solutions
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A firm evaluates all of its projects by applying the NPV decision rule. A project under...
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Year Cash Flow
0...
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