(NPV with varying required rates of return) Gubanich Sportswear is considering building a new factory to produce aluminum baseball bats. This project would require an initial cash outlay of $4,000,000 and would generate annual free cash inflows of $1,200,000 per year for 7 years. Calculate the project's NPV given:
a. A required rate of return of 9 percent
b. A required rate of return of 11 percent
c. A required rate of return of 13 percent
d. A required rate of return of 18 percent
1. If the required rate of return is 9 percent, the project's
NPV is $
2. If the required rate of return is 11 percent, the project's
NPV is $
3. If the required rate of return is 13 percent, the project's
NPV is $
4. If the required rate of return is 18 percent, the project's
NPV is $
a.Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate
=1,200,000[1-(1.09)^-7]/0.09
=1,200,000*5.03295284
=6039543.40
NPV=Present value of inflows-Present value of outflows
=6039543.40-4,000,000
=$2,039,543.40(Approx).
b.Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate
=1,200,000[1-(1.11)^-7]/0.11
=1,200,000*4.71219626
=5654635.52
NPV=Present value of inflows-Present value of outflows
=5654635.52-4,000,000
=$1,654,635.52(Approx).
c.Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate
=1,200,000[1-(1.13)^-7]/0.13
=1,200,000*4.42261043
=5307132.52
NPV=Present value of inflows-Present value of outflows
=5307132.52-4,000,000
=$1,307,132.52(Approx).
d.Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate
=1,200,000[1-(1.18)^-7]/0.18
=1,200,000*3.81152759
=4573833.11
NPV=Present value of inflows-Present value of outflows
=4573833.11-4,000,000
=$573,833.11(Approx).
(NPV with varying required rates of return) Gubanich Sportswear is considering building a new factory to...
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