A project that provides annual cash flows of $17,300 for nine years costs $79,00

Question

A project that provides annual cash flows of $17,300 for nine years costs $79,000 today.

What is the NPV for the project if the required return is 8 percent? (Round your answer to 2 decimal places. (e.g., 32.16))

NPV $   =

At a required return of 8 percent, should the firm accept this project?

What is the NPV for the project if the required return is 20 percent? (Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places. (e.g., 32.16))

NPV $   =

At a required return of 20 percent, should the firm accept this project?

At what discount rate would you be indifferent between accepting the project and rejecting it? (Round your answer to 2 decimal places. (e.g., 32.16))

Discount rate %   =

Explanation / Answer

Hi,

Please find the detailed answer as follows:

Part A:

NPV = -79000 + 17300/(1+.08)^1 + 17300/(1+.08)^2 + 17300/(1+.08)^3 + 17300/(1+.08)^4 + 17300/(1+.08)^5 + 17300/(1+.08)^6 + 17300/(1+.08)^7 + 17300/(1+.08)^8 + 17300/(1+.08)^9 = $29071.16

Yes, the project should be accepted.

-------

Part B:

NPV = -79000 + 17300/(1+.20)^1 + 17300/(1+.20)^2 + 17300/(1+.20)^3 + 17300/(1+.20)^4 + 17300/(1+.20)^5 + 17300/(1+.20)^6 + 17300/(1+.20)^7 + 17300/(1+.20)^8 + 17300/(1+.20)^9 = -$9264.28

No, the project should not be accepted.

Part C:

Discount Rate = 16.25%

Thanks.

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