Question

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

Year	Cash Flow
0		–$ 157,300
1		74,000
2		87,000
3		46,000

a.	At a required return of 9 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.)
b.	At a required return of 21 percent, what is the NPV of the project? (A negative answser should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer 1

NPV refers to net present value. It is the difference between the present value of future cash flows and initial investment.
With the given information, we can determine the NPV using excel as follows:

1 Year 0 1 Cash flows - 157300 74000 87000 46000 19336.51 6 NPV at 9%= 7 NPV at 21%

1 Year Cash flows 2 0 - 157300 3 1 74000 4 2 87000 5 3 46000 6 NPV at 9%= =12+NPV(9%,13:15) 7 NPV at 21%= =12+NPV(21%,13:15)

Answer: Hence, the NPV at a required return of 9% is $19336.51 and NPV at a required return of 21% is -$10755.00