Question

Use the following information to calculate the NPV for an overseas expansion:

Year	Cash Flow
0	-$25,000
1	10,000
2	20,000
3	30,000

What is the NPV at a required return of 7%?  Should the firm accept the project?  What if the required return is 14%?

Answer 1

Ans.	NPV at 7% :-
	Year	Cash Flow	PV Factor	Present Value of Cash Flow
	0	(25,000)	-	(25,000)
	1	10,000	0.935	9,346
	2	20,000	0.873	17,469
	3	30,000	0.816	24,489
	Total Net present value			26,304
	Yes, the firm has to accept the project.
	NPV at 14% :-
	Year	Cash Flow	PV Factor	Present Value of Cash Flow
	0	(25,000)	-	(25,000)
	1	10,000	0.877	8,772
	2	20,000	0.769	15,389
	3	30,000	0.675	20,249
	Total Net present value			19,410
	Yes, the firm has to accept the project.

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