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A firm evaluates all of its projects by using the NPV decision rule.    Year                 Cash...

A firm evaluates all of its projects by using the NPV decision rule.

  

Year

                Cash Flow

0

–$30,000      

1

21,000      

2

15,000      

3

10,000      

  

a. At a required return of 23 percent, what is the NPV for this project?

  

b. At a required return of 39 percent, what is the NPV for this project?
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Answer #1

At 23%:

Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)=

=21000/1.23+15000/1.23^2+10000/1.23^3

=$32361.74

NPV=Present value of inflows-Present value of outflows

=$32361.74-$30,000

=$2361.74(Approx).

At 39%:

Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)=

=21000/1.39+15000/1.39^2+10000/1.39^3

=$26595.02

NPV=Present value of inflows-Present value of outflows

=$26595.02-$30,000

=$(3404.98)(Approx).(Negative).

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