In: Accounting
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%?
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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