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A firm evaluates all of its projects by applying the NPV decision rule. A project under consideration has the following cashWhat is the NPV of the project if the required return is 24 percent? (A negative answer should be indicated by a minus sign.

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Answer #1

Ans NPV @ 11% : $ 2198.30

Accept the project since NPV is positive

NPV @ 24% : - $4028.70

Reject the project since NPV is negative

Year Project Cash Flows (i) DF@ 11% DF@ 11% (ii) PV of Project ( (i) * (ii) ) DF@ 24% (iii) PV of Project ( (i) * (iii) )
0 -34000 1 1                    (34,000.00) 1        (34,000.00)
1 15000 1/((1+11%)^1) 0.893                     13,392.86 0.806          12,096.77
2 17000 1/((1+11%)^2) 0.797                     13,552.30 0.650          11,056.19
3 13000 1/((1+11%)^3) 0.712                       9,253.14 0.524            6,818.33
NPV                       2,198.30 NPV          (4,028.70)
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