A project that costs $2,800 to install will provide annual cash flows of $630 fo

Question

A project that costs $2,800 to install will provide annual cash flows of $630 for the next 6 years. The firm accepts projects with payback periods of less than 4 years. a-1. What is the payback period of the project? (Round your answer to 2 decimal places.) Payback period years a-2. Will the project be accepted? Yes No b-1. What is project NPV if the discount rate is 2%? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.) NPV $ b-2. Should this project be pursued? Yes No c-1. What is project NPV if the discount rate is 12%? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.) NPV $ c-2. Should this project be pursued? Yes No d. Will the firm

Explanation / Answer

a-1. payback period =2800/630= 4.44 years a-2 No b-1 NPV =-2800+630*PVIFA(2%,6) = -2800+630*5.6014=728.88 b-2 YES because NPV>0 c-1 NPV= -2800+630*PVIFA(12%,6)= -2800+630*4.1114=-209.81 c-2 No d. yes

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