Question

A project that provides annual cash flows of $2,450 for nine years costs $10,100 today.

Requirement 1:

At a required return of 9 percent, what is the NPV of the project? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

NPV

$

Requirement 2:

At a required return of 25 percent, what is the NPV of the project? Use the IRR function. (Do not round intermediate calculations. A negative amount should be indicated by a minus sign. Round your answer to 2 decimal places (e.g., 32.16).)

NPV

$

Requirement 3:

At what discount rate would you be indifferent between accepting the project and rejecting it? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)

Discount rate

%

Answer 1

1

Discount rate	9.000%
Year	0	1	2	3	4	5	6	7	8	9
Cash flow stream	-10100	2450	2450	2450	2450	2450	2450	2450	2450	2450
Discounting factor	1.000	1.090	1.188	1.295	1.412	1.539	1.677	1.828	1.993	2.172
Discounted cash flows project	-10100.000	2247.706	2062.116	1891.850	1735.642	1592.332	1460.855	1340.234	1229.572	1128.048
NPV = Sum of discounted cash flows
NPV Project =	4588.35
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor

2

Discount rate	25.000%
Year	0	1	2	3	4	5	6	7	8	9
Cash flow stream	-10100	2450	2450	2450	2450	2450	2450	2450	2450	2450
Discounting factor	1.000	1.250	1.563	1.953	2.441	3.052	3.815	4.768	5.960	7.451
Discounted cash flows project	-10100.000	1960.000	1568.000	1254.400	1003.520	802.816	642.253	513.802	411.042	328.833
NPV = Sum of discounted cash flows
NPV Project =	-1615.33
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor

3

Project
IRR is the rate at which NPV =0
IRR	19.30%
Year	0	1	2	3	4	5	6	7	8	9
Cash flow stream	-10100.000	2450.000	2450.000	2450.000	2450.000	2450.000	2450.000	2450.000	2450.000	2450.000
Discounting factor	1.000	1.193	1.423	1.698	2.026	2.417	2.883	3.440	4.104	4.896
Discounted cash flows project	-10100.000	2053.591	1721.321	1442.812	1209.366	1013.691	849.676	712.199	596.966	500.377
NPV = Sum of discounted cash flows
NPV Project =	0.000
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor
IRR=	19.30% = indifference rate