Question

Compute the NPV for Project M if the appropriate cost of capital is 8 percent. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your final answer to 2 decimal places.)

Project M
Time:	0	1	2	3	4	5
Cash flow:	−$1,900	$530	$660	$700	$780	$280

NPV?

Should the project be accepted or rejected?

• accepted

• rejected

Answer 1

Solution:
a.	NPV     476.15
Working Notes:
Notes:	NPV is the net of present value of cash flows during the life of project which includes cash outflows and cash inflows.
	A	B	C = A x B
Time	Cash flow	PVF @ 8%	Present Value
0	-1900	1	-1900
1	530	0.925926	490.7407
2	660	0.857339	565.8436
3	700	0.793832	555.6826
4	780	0.735030	573.3233
5	280	0.680583	190.5633
		NPV	476.15
Notes: PVF is calculated @ r% = 1/(1+r%)^n    for given case used is (1/(1.08)^n) where n is the period for which PVF is calculated.
b.
	Accepted
Working Notes:
	Project M Should Be accepted as its NPV is positive 476.15 means it is able to generate more than required cost of capital of 8% , hence the project should be accepted.
Please feel free to ask if anything about above solution in comment section of the question.