A project that provides annual cash flows of $28,500 for nine years costs $138,0

Question

A project that provides annual cash flows of $28,500 for nine years costs $138,000 today. If the required return is 8 percent, the NPV for the project is $_____ . If the required return is 20 percent, the NPV is $______. At a discount rate of ___percent, you would be indifferent between accepting the project and rejecting it. (Do not include the dollar & percent signs ($ & %). Negative amount should be indicated by a minus sign. Round your answers to 2 decimal places. (e.g., 32.16))

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Explanation / Answer

NPV at 8% :

Discount Factor at 8% for 9 Years: 6.24689

NPV = PV of Inflow - Outflow

PV of Inflow = 28,500 x 6.24689 = $178,036.365

NPV = Inflow - Outflow = 178,036.365 - 138,000 = 40036.37

NPV at 20%:

DF at 20% for 9% = 4.03097

PV of Inflow at 20% = 28,500 x 4.03097 = $114,882.645

NPV = PV of Inflow - Outflow= 114,882.645 - 138,000 = -23,117.355

At the Discount Rate of 14.59% we would be indifferent between accepting the Project or Rejecting it.

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