Question

Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 11 percent, and that the maximum allowable payback and discounted payback statistic for the project are 2 and 3 years, respectively. Time 0 1 2 3 4 5 6 Cash Flow -990 190 410 610 610 210 610 Use the NPV decision rule to evaluate this project; should it be accepted or rejected?

Answer 1

NPV = -$990 + $190/1.11 + $410/1.11² + $610/1.11³ + $610/1.11⁴ + $210/1.11⁵ + $610/1.11⁶

NPV = $812.54