A project that provides annual cash flows of $16,800 for nine years costs $74,00

Question

A project that provides annual cash flows of $16,800 for nine years costs $74,000 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))

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))

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))

A project that provides annual cash flows of $16,800 for nine years costs $74,000 today.

Explanation / Answer

NPV = CF0 + A * (1-(1+i)^-n)/i

a) NPV at 8% = -74000 + 16800 * (1-(1+.08)^-9)/.08 = 30948

b) Yes, project should be accepted as it has positive NPV.

c) NPV at 20% = -74000 + 16800 * (1-(1+.20)^-9)/.20 = (-) 6280

d) No, project should not be accepted as it has negative NPV.

e) Indifferent rate: -74000 + 16800 * (1-(1+i)^-9)/i = 0

i = 17.30%

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