Compute the NPV statistic for Project Y and tell [advise] whether the firm shoul

Question

Compute the NPV statistic for Project Y and tell [advise] whether the firm should accept or reject the project with the cash flows shown in the chart if the appropriate cost of capital is 12 percent.

Project Y

Time

0

1

2

3

4

Cash   Flow

-$11,000

$3,350

$4,180

$1,520

$2,000

(Cornett, Adair, & Nofsinger, 2014).

   

Time

       

0

       

1

       

2

       

3

       

4

      

Cash   Flow

     

-$11,000

     

$3,350

     

$4,180

     

$1,520

     

$2,000

   Compute the NPV statistic for Project Y and tell [advise] whether the firm should accept or reject the project with the cash flows shown in the chart if the appropriate cost of capital is 12 percent. Project Y

Explanation / Answer

Hi,

Please find the answer as follows:

NPV = -11000 + 3350/(1+.12)^1 + 4180/(1+.12)^2 + 1520/(1+.12)^3 + 2000/(1+.12)^4 = -2323.72 or -2324

The project should not be accepted as NPV is negative.

Thanks.

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