A firm evaluates all of its projects by using the NPV decision rule. Year Cash...

Question

Question

A firm evaluates all of its projects by using the NPV decision rule.

Required:
(a)	At a required return of 24 percent, what is the NPV for this project?

	(Click to select)6,125.886,253.56,381.126,508.746,700.18

(b)	At a required return of 40 percent, what is the NPV for this project?

	(Click to select)918.37874.64839.65892.13857.14

Answer 1

Answer #1

NPV = PV of Cash Inflows - PV of Cash Outflows

a). NPV = [$20,000 / 1.24¹] + [$17,000 / 1.24²] + [$8,000 / 1.24³] - $25,000

= $16,129.03 + $11,056.19 + $4,195.90 - $25,000 = $6,381.12

Hence, Option "C" is correct.

b). NPV = [$20,000 / 1.40¹] + [$17,000 / 1.40²] + [$8,000 / 1.40³] - $25,000

= $14,285.71 + $8,673.47 + $2,915.45 - $25,000 = $874.64

Hence, Option "B" is correct.

Answer 2

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