Question

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 -$28,300 12,300 15,300 11,300 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... 32.16.) NPV At a required return of 11 percent, should the firm accept this project? ONO Yes What is the NPV for the project if the required return is 25 percent? (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 At a required return of 25 percent, should the firm accept this project? Yes O No

Answer 1

Present Value = Future value/ ((1+r)^t)
where r is the interest rate that is 11% and t is the time period in years.
Net present value (NPV) = initial investment + sum of present values of future cash flows.
Year	0	1	2	3
cash flow	-28300	12300	15300	11300
present value		11081.08	12417.82	8262.463
NPV	3461.367
The NPV is $3461.37.
At a required rate of 11%, the firm should accept the project
because the NPV is positive.
Present Value = Future value/ ((1+r)^t)
where r is the interest rate that is 25% and t is the time period in years.
Net present value (NPV) = initial investment + sum of present values of future cash flows.
Year	0	1	2	3
cash flow	-28300	12300	15300	11300
present value		9840	9792	5785.6
NPV	-2882.4
The NPV is -$2882.4.
At a required rate of 25%, the firm should reject the project
because the NPV is negative.