Use Appendix B for an approximate answer but calculate your final answer using t
ID: 1171098 • Letter: U
Question
Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods.
Determine the net present value of the project based on a zero percent discount rate.
Determine the net present value of the project based on a 6 percent discount rate. (Do not round intermediate calculations and round your answer to 2 decimal places.)
Determine the net present value of the project based on a 20 percent discount rate. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places.)
Net present value
$
Explanation / Answer
the initial investment in the project = $71,000
the cash flows for year 1 =$32,000
the cash flows for year2 = $31,000
the cash flows for year 3 = $18,000
the formula for calculating the NPV is=
(initial investment) + PV of cash flows
a. = (71,000) + 32,000/(1+0)^1 + $31,000/(1 + 0)^2 + $18,000/(1+0)^3
= $10,000
alternatively if we are using the financial calculator ,
the strokes will be as follows:
CF0 = (71,000)
CF1 = 32,000
CF2 = 31,000
CF3 = 18,000
I= 0
COMPUTE NPV
NPV = $10,000
B. WHEN INPUTTING THE DISCOUNT RATE AS I= 6%
THE NPV = $1891.71
NPV = $1892
C. WHEN INPUTTING THE DISCOUNT RATE = 20%
NPV = -$12388.88
NPV = $-12389.
negative NPV depicts that this project is going to destroy value of the company.
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