Question

(NPV with varying required rates of return) Gubanich Sportswear is considering building a new factory to produce aluminum baseball bats. This project would require an initial cash outlay of $6,000,000 and would generate annual free cash inflows of $1,200,000 per year for 8 years. Calculate the project's NPV given: a. A required rate of return of 8 percent b. A required rate of return of 12 percent c. A required rate of return of 13 percent d. A required rate of return of 17 percent a. If the required rate of return is 8 percent, the project's NPV is (Round to the nearest dollar.) b. If the required rate of return is 12 percent, the project's NPV is $ (Round to the nearest dollar.) c. If the required rate of return is 13 percent, the project's NPV is $ (Round to the nearest dollar.) d. If the required rate of return is 17 percent, the project's NPV is $ (Round to the nearest dollar.)

Answer 1

A. cash flows 1 year -$6,000,000 2 0 $1,200,000 $1,200,000 1 4 2 $1,200,000 $1,200,000 5 6 4 $1,200,000 $1,200,000 $1,200,000 $1,200,000 7 5 6 7 10 11 $895,967 NPV at 8% a) 12 NPV(8%,C3:C10)+C2 13 14 -$38,832 NPV at 12% b) 15 NPV(12%,C3:C10)+C2 16 17 -$241,476 NPV at 13% c) 18 NPV(13%,C3:C10)+C2 19 20 -$615,214 NPV(17%,C3:C10) +C2 NPV at 17% d) 21 22 et