Question

A firm evaluates all of its projects by using the NPV decision rule. Year WNO Cash Flow -$30,000 19,000 14,000 10,000 Required: (a)At a required return of 23 percent, what is the NPV for this project? rn of 41 percent, what is the NPV for this project? (Click to select) (Click to select) 71.75 74.74 73.25 76.24 78.48

Answer 1

NPV at 23%	74.74
NPV at 41%	-5915.60

value factor = 1 /(1+r)^n

r is interest rate => 23% , 41% in the given case =>0.23, 0.41.

n =0,1,2,3.

the following table show the calculation of NPV:

year	cash flow	PV factor @23%	cash flow *PV factor	PV factor @41%	cash flow *PV factor
0	-30,000	1/(1.23)^0=>1	-30,000*1=>-30,000	1/(1.41)^0=>1	-30,000*1=>-30,000
1	19,000	1/(1.23)=>0.8130	(19,000*0.8130)=>15,447	1/(1.41)=>0.7092	19,000*0.7092=>13,474.80
2	14,000	1/(1.23)^2=>0.6610	(14,000*0.6610)=>9,254	1/(1.41)^2=>0.5030	14,000*0.5030=>7,042
3	10,000	1/(1.23)^3=>0.5374	(10,000*0.5374)=>5,374	1/(1.23)^3=>0.3567	10,000*0.5374=>3,567
		NPV	75...(close to 74.74)		-5,916.20 ..(close to -5915.60)

note: minor variations will arise due to rounding off of the PV factor to 4 decimals.