A firm evaluates all of its projects by using the NPV decision rule. At a requir

Question

A firm evaluates all of its projects by using the NPV decision rule. At a required return of 11 percent, the NPV for the following project is $ and the firm should the project. At a required return of 30 percent, the NPV is $ and the firm should

the project. (Do not include the dollar signs ($). Negative amount should be indicated by a minus sign. Round your answers to 2 decimal places. (e.g., 32.16))

  

the project. (Do not include the dollar signs ($). Negative amount should be indicated by a minus sign. Round your answers to 2 decimal places. (e.g., 32.16))

Explanation / Answer

When required rate of return is 11% the company can accept the project as the NPV is positive.

When required rate of return is 30% the company should not accept the project as the NPV is negative.

Present value of cash flow is calculated as follows:

Cashflow/(1+i)^n

where i is the required rate of return, n = number of year (Compounding)

Year PV of cash flows at 11% 0 -34000      (34,000.00) 1 16000        14,414.41 2 18000        14,609.20 3 15000        10,967.87 NPV          5,991.49

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