Question

A firm evaluates all of its projects by applying the NPV decision rule. A project under consideration has the following cash flows: Year Cash Flow $27,300 0 11,300 14,300 10,300 1 2 What is the NPV for the project if the required return is 10 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV At a required return of 10 percent, should the firm accept this project? Yes No What is the NPVv for the project if the required return is 26 percent? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV At a required return of 26 percent, should the firm accept this project? Yes No

Answer 1

rate positively..

ans a)		i	ii	iii	iv=ii*iii
		year	Cash flow	PVIF @ 10%	Present value
		0	-27300	1.0000	(27,300.00)
		1	11300	0.9091	10,272.73
		2	14300	0.8264	11,818.18
		3	10300	0.7513	7,738.54
					2,529.45
		NPV =		2,529.45
ans b)		We can see that NPV is positive at 10% rate of return.
		therefore project should be ACCEPTED
		Ans = Yes
ans c)
		i	ii	iii	iv=ii*iii
		year	Cash flow	PVIF @ 26%	Present value
		0	-27300	1.0000	(27,300.00)
		1	11300	0.7937	8,968.25
		2	14300	0.6299	9,007.31
		3	10300	0.4999	5,149.03
					(4,175.41)
		NPV =		(4,175.41)
ans d)		We can see that NPV is negative at 26% rate of return
		therefore project should not be accepted.
		Ans = No