1. Your firm is considering an investment that will cost $920,000 today. The investment will produce...

1. Your firm is considering an investment that will cost $920,000 today. The investment will produce cash flows of $450,000 in year 1, $270,000 in years 2, 3 and 4, and $200,000 in year 5. The discount rate that your firm uses for projects of this type is 12%. How much would the NPV change if discount rate increases to 8%?

		$53,373
		($45,813)
		$102,774
		($95,214)

Expert Solution

Correct answer---------$102,774

Working

NPV at 12%	$ 174,284
NPV at 8%	$ 277,058
Change in NPV	$ (102,774)

.

Year	Cash	PV factor @12%	Present value
0	$ (920,000.00)	1	$ (920,000.00)
1	$ 450,000.00	0.892857143	$ 401,785.71
2	$ 270,000.00	0.797193878	$ 215,242.35
3	$ 270,000.00	0.711780248	$ 192,180.67
4	$ 270,000.00	0.635518078	$ 171,589.88
5	$ 200,000.00	0.567426856	$ 113,485.37
TOTAL			$ 174,283.98

.

Year	Cash	PV factor @8%	Present value
0	$ (920,000.00)	1	$ (920,000.00)
1	$ 450,000.00	0.925925926	$ 416,666.67
2	$ 270,000.00	0.85733882	$ 231,481.48
3	$ 270,000.00	0.793832241	$ 214,334.71
4	$ 270,000.00	0.735029853	$ 198,458.06
5	$ 200,000.00	0.680583197	$ 136,116.64
TOTAL			$ 277,057.55

ekkarill92 answered 2 years ago

Your firm is considering an investment that will cost $920,000 today. The investment will produce cash...

Your firm is considering an investment that will cost $920,000 today. The investment will produce cash flows of $450,000 in year 1, $270,000 in years 2, 3 and 4, and $200,000 in year 5. The discount rate that your firm uses for projects of this type is 12%. How much would the NPV change if discount rate increases to 14%? $102,774 ($95,214) $53,373 ($45,813)

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