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 | $ | -27,700 | |
| 1 | 11,700 | ||
| 2 | 14,700 | ||
| 3 | 10,700 | ||
|
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.) |
| 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? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| 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 | (27,700.00) | (27,700.00) |
| PV of Cash outflows = PVCO | (27,700.00) | |||
| Cash inflows | 1.00 | 0.8929 | 11,700.00 | 10,446.43 |
| Cash inflows | 2.00 | 0.7972 | 14,700.00 | 11,718.75 |
| Cash inflows | 3.00 | 0.7118 | 10,700.00 | 7,616.05 |
| PV of Cash Inflows =PVCI | 29,781.23 | |||
| NPV= PVCI - PVCO | 2,081.23 | |||
| Yes since NPV is positive a 12% | ||||
| Statement showing Cash flows | ||||
| Particulars | Time | PVf 24% | Amount | PV |
| Cash Outflows | - | 1.00 | (27,700.00) | (27,700.00) |
| PV of Cash outflows = PVCO | (27,700.00) | |||
| Cash inflows | 1.00 | 0.8065 | 11,700.00 | 9,435.48 |
| Cash inflows | 2.00 | 0.6504 | 14,700.00 | 9,560.35 |
| Cash inflows | 3.00 | 0.5245 | 10,700.00 | 5,612.01 |
| PV of Cash Inflows =PVCI | 24,607.85 | |||
| NPV= PVCI - PVCO | (3,092.15) | |||
| No since NPV is negative at 24% | ||||
jeff jeffy answered 1 year agoRelated Solutions
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