Question

Please respond to both pictures asap. I will THUMBS UP within the hour.

19

A corporation requires a 10% rate of return for the investment project whose ater-tax, incremental cash flows are presented below. Initial cash flow:-$2,000 Future cash inflows years 1-4: $600 Calculate the NPV of this project. round to the nearest cents.

20

Answer 1

Answer to Question 19:

Cash Flows:
Year 0 = -$2,000
Year 1 = $600
Year 2 = $600
Year 3 = $600
Year 4 = $600

Required Return = 10%

Net Present Value = -$2,000 + $600/1.10 + $600/1.10^2 + $600/1.10^3 + $600/1.10^4
Net Present Value = -$2,000 + $600 * (1 - (1/1.10)^4) / 0.10
Net Present Value = -$2,000 + $600 * 3.169865
Net Present Value = -$98.08

Answer to Question 20:

Beginning Value = $53,400
Ending Value = $49,600
Cash Flow = $3,260

Rate of Return = (Ending Value + Cash Flow - Beginning Value) / Beginning Value
Rate of Return = ($49,600 + $3,260 - $53,400) / $53,400
Rate of Return = -$540 / $53,400
Rate of Return = -0.0101 or -1.01%