Question

In: Finance

For the given cash flows, suppose the firm uses the NPV decision rule.    Year Cash...

For the given cash flows, suppose the firm uses the NPV decision rule.
  

Year Cash Flow
0 –$ 146,000
1 70,000
2 69,000
3 53,000


At a required return of 11 percent, what is the NPV of the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
  
NPV            $

At a required return of 22 percent, what is the NPV of the project? (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.)
  
NPV            $

Solutions

Expert Solution

Part 1: At required return of 11%

NPV=-Initial cash outflow + Present value of future cash flows
Present value of future cash flows=Cash flow in year 1/(1+Required return)^1+Cash flow in year 2/(1+Required return)^2+Cash flow in year 3/(1+Required return)^3
Using the cash flows given in the question, we get:
Present value of future cash flows=70000/(1+11%)^1+69000/(1+11%)^2+53000/(1+11%)^3
=70000/(1.11)^1+69000/(1.11)^2+53000/(1.11)^3
=70000/1.11+69000/1.2321+53000/1.367631
=63063.06306+56001.94789+38753.14321
=157818.1542
Present value of future cash flows=$157818.1542
Initial cash outflow=$146000
NPV=-$146000+$157818.1542=$11818.1542 or $11818.15 (Rounded to two decimal places)

Part 2: At required return of 22%

Present value of future cash flows=70000/(1+22%)^1+69000/(1+22%)^2+53000/(1+22%)^3
=70000/(1.22)^1+69000/(1.22)^2+53000/(1.22)^3
=70000/1.22+69000/1.4884+53000/1.815848
=57377.04918+46358.50578+29187.46503
=132923.02
Present value of future cash flows=$132923.02
Initial cash outflow=$146000
NPV=-$146000+$132923.02=-$13076.98

jeff jeffy answered 1 year ago
Next > < Previous

Related Solutions

A firm evaluates all of its projects by using the NPV decision rule.    Year                 Cash...
A firm evaluates all of its projects by using the NPV decision rule.    Year                 Cash Flow 0 –$31,000       1 22,000       2 12,000       3 7,000          a. At a required return of 13 percent, what is the NPV for this project?    b. At a required return of 40 percent, what is the NPV for this project?
A firm evaluates all of its projects by using the NPV decision rule.    Year                 Cash...
A firm evaluates all of its projects by using the NPV decision rule.    Year                 Cash Flow 0 –$28,000       1 20,000       2 13,000       3 4,000          Required: (a) At a required return of 23 percent, what is the NPV for this project? (Click to select)  -1,017.48  -997.53  -957.63  -1,047.41  -977.58    (b) At a required return of 36 percent, what is the NPV for this project? (Click to select)  -4,581.89  -4,768.91  -4,909.17  -4,488.39  -4,675.4
A firm evaluates all of its projects by using the NPV decision rule. Year Cash Flow...
A firm evaluates all of its projects by using the NPV decision rule. Year Cash Flow 0 –$28,000 1 21,000 2 14,000 3 9,000 a. At a required return of 24 percent, what is the NPV for this project? b. At a required return of 40 percent, what is the NPV for this project?
A firm evaluates all of its projects by using the NPV decision rule. Year   Cash Flow...
A firm evaluates all of its projects by using the NPV decision rule. Year   Cash Flow 0   –$30,000 1   18,000 2   17,000 3   10,000    a. At a required return of 13 percent, what is the NPV for this project? 6173 6482 5926 6297 6050 b. At a required return of 35 percent, what is the NPV for this project? -3438.12 -3143.42 -3339.89 -3208.91 -3274.40
Evaluating cash flows with the NPV method The net present value (NPV) rule is considered one...
Evaluating cash flows with the NPV method The net present value (NPV) rule is considered one of the most common and preferred criteria that generally lead to good investment decisions. Consider this case: Suppose Happy Dog Soap Company is evaluating a proposed capital budgeting project (project Alpha) that will require an initial investment of $600,000. The project is expected to generate the following net cash flows: Year Cash Flow Year 1 $350,000 Year 2 $475,000 Year 3 $425,000 Year 4...
Calculate the NPV given the following cash​ flows YEAR   CASH FLOWS 0 -60,000 1 25,000 2...
Calculate the NPV given the following cash​ flows YEAR   CASH FLOWS 0 -60,000 1 25,000 2 25,000 3 15,000 4 15,000 5 10,000 6   10,000 if the appropriate required rate of return is 8 percent. Should the project be​ accepted? What is the​ project's NPV​?
A firm evaluates all of its projects by using the NPV decision rule. At a required...
A firm evaluates all of its projects by using the NPV decision rule. At a required return of 12 percent, the NPV for the following project is $ and the firm should the project. At a required return of 31 percent, the NPV is $ and the firm should the project. (Do not include the dollar signs ($). Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places. (e.g., 32.16)) Year Cash Flow 0...
Given the cash-flows in the table, what is the NPV of project A?
1. Project A Year Cash Flow 0 -$107 1 $69 2 $80 3 $120 WACC = 6.19% Given the cash-flows in the table, what is the NPV of project A?   State your answer to the nearest penny. Give just the number with no dollar sign (e.g., 3.26) If the NPV is negative include the - sign (e.g. -4.28) 2. Using the information in the table, what is the IRR for Project A? Cash Flow Year Project A 0 ($175) 1...
A firm evaluates all of its projects by applying the NPV decision rule. A project under...
A firm evaluates all of its projects by applying the NPV decision rule. A project under consideration has the following cash flows:    Year Cash Flow 0 –$ 27,400 1 11,400 2 14,400 3 10,400    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.)      NPV $       At a required return of 12 percent, should the firm accept...
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 –$ 28,600 1 12,600 2 15,600 3 11,600    What is the NPV for the project if the required return is 11 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) At a required return of 11 percent, should the firm accept this project? Yes No...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT