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Soft and Cuddly is considering a new toy that will produce the following cash flows. Should the company produce this toy if the firm requires a 15 percent rate of return?


Year 0 Cash Flow -$31,000 26,000 9.000 2

Group of answer choices

Yes, because the project's net present value is $1,586

Yes, because the project's net present value is $565

No, because the project's net present value is -$1,586

No, because the project's net present value is -$565

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Answer #1

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

=26,000/1.15+9,000/1.15^2

=29413.99

NPV=Present value of inflows-Present value of outflows

=29413.99-31,000

=($1586)(Approx)(Negative).

Hence since NPV is negative;project must be rejected.

Hence the correct option is:

No, because the project's net present value is -$1,586

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