A firm evaluates all of its projects by using the NPV decision rule. Year Cash...

Question

Question

A firm evaluates all of its projects by using the NPV decision rule.

a. At a required return of 12 percent, what is the NPV for this project?

b. At a required return of 39 percent, what is the NPV for this project?

Answer 1

Answer #1

a.Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

=19,000/1.12+17,000/1.12^2+8,000/1.12^3

=36210.82

NPV=Present value of inflows-Present value of outflows

=36210.82-$27,000

=$9210.82(Approx).

b.Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

=19,000/1.39+17,000/1.39^2+8,000/1.39^3

=25446.61

NPV=Present value of inflows-Present value of outflows

=25446.61-$27,000

=$(1553.39)(Approx).(Negative).

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Answer 2

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