Question

A firm evaluates all of its projects by using the NPV decision rule. At a required return on f 14 percent, what is the NPV for this project? At a required return of 37 percent, what is the NPV for this project?

A firm evaluates all of its projects by using the NPV decision rule. Year WNO Cash Flow $31,000 20.000 14.000 11,000 a. At a required return of 14 percent, what is the NPV for this project? b. At a required return of 37 percent, what is the NPV for this project?

Answer 1

a) Required return = 14%

Net present value = [$20,000 / (1.14)¹] + [$14,000 / (1.14)²] + [$11,000 / (1.14)³] - $31,000

Net present value = $35,741.09 - $31,000

Net present value = $4,741.09

b) Required return = 37%

Net present value = [$20,000 / (1.37)¹] + [$14,000 / (1.37)²] + [$11,000 / (1.37)³] - $31,000

Net present value = $26,335.55 - $31,000

Net present value = - $4,664.45