Homework Answers
A1:
NPV = PV of cash Inflows - PV of cash Outflows
PV of Cash Inflows = CF1 / [ Ke - g ]
= $ 115,000 / [ 12% -7% ]
= $ 115,000 / 5%
= $ 2300000
NPV = PV of Cash Inflows - PV of Cash Outflow
= $ 2300000 - $ 1300000
= $ 1000000
A2:
Project should be strted As it has +ve NPV
B:
g =Ke - [ CF1/ Investment ]
= 12% - [ 115000 / 1300000 ]
= 0.12- 0.0885
=12% - 8.85%
= 3.15%
Min growth rate shoud be 3.15% to break even the project
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