A project that provides annual cash flows of $2,850 for nine years costs $9,400

Question

A project that provides annual cash flows of $2,850 for nine years costs $9,400 today. Requirement 1: At a required return of 12 percent. what is the NPV of the project? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) Requirement 2: At a required return of 28 percent, what is the NPV of the project? (Do not round intermediate calculations. A negative amount should be indicated by a minus sign. Round your answer to 2 decimal places (e.g., 32.16).) Requirement 3: At what discount rate would you be indifferent between accepting the project and rejecting it? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)

Explanation / Answer

Statemnet showing Cash flows Particulars Time PVf@12% Amount PV Cash Outflows                            -                         1.00     (9,400.00)         (9,400.00) PV of Cash outflows         (9,400.00) Cash inflows                     1.00                  0.8929        2,850.00           2,544.64 Cash inflows                     2.00                  0.7972        2,850.00           2,272.00 Cash inflows                     3.00                  0.7118        2,850.00           2,028.57 Cash inflows                     4.00                  0.6355        2,850.00           1,811.23 Cash inflows                     5.00                  0.5674        2,850.00           1,617.17 Cash inflows                     6.00                  0.5066        2,850.00           1,443.90 Cash inflows                     7.00                  0.4523        2,850.00           1,289.20 Cash inflows                     8.00                  0.4039        2,850.00           1,151.07 Cash inflows                     9.00                  0.3606        2,850.00           1,027.74 PV of Cash Inflows         14,157.77 NPV           4,757.77 Statemnet showing Cash flows Particulars Time PVf@28% Amount PV Cash Outflows                            -                         1.00     (9,400.00)         (9,400.00) PV of Cash outflows         (9,400.00) Cash inflows                     1.00                  0.7813        2,850.00           2,226.56 Cash inflows                     2.00                  0.6104        2,850.00           1,739.50 Cash inflows                     3.00                  0.4768        2,850.00           1,358.99 Cash inflows                     4.00                  0.3725        2,850.00           1,061.71 Cash inflows                     5.00                  0.2910        2,850.00               829.46 Cash inflows                     6.00                  0.2274        2,850.00               648.01 Cash inflows                     7.00                  0.1776        2,850.00               506.26 Cash inflows                     8.00                  0.1388        2,850.00               395.52 Cash inflows                     9.00                  0.1084        2,850.00               309.00 PV of Cash Inflows           8,766.01 NPV            (633.99) Statemnet showing Cash flows Particulars Time PVf@25% Amount PV Cash Outflows                            -                         1.00     (9,400.00)         (9,400.00) PV of Cash outflows         (9,400.00) Cash inflows                     1.00                  0.8000        2,850.00           2,280.00 Cash inflows                     2.00                  0.6400        2,850.00           1,824.00 Cash inflows                     3.00                  0.5120        2,850.00           1,459.20 Cash inflows                     4.00                  0.4096        2,850.00           1,167.36 Cash inflows                     5.00                  0.3277        2,850.00               933.89 Cash inflows                     6.00                  0.2621        2,850.00               747.11 Cash inflows                     7.00                  0.2097        2,850.00               597.69 Cash inflows                     8.00                  0.1678        2,850.00               478.15 Cash inflows                     9.00                  0.1342        2,850.00               382.52 PV of Cash Inflows           9,487.40 NPV                 87.40 Statemnet showing Cash flows Particulars Time PVf@25.5% Amount PV Cash Outflows                            -                         1.00     (9,400.00)         (9,400.00) PV of Cash outflows         (9,400.00) Cash inflows                     1.00                  0.7968        2,850.00           2,270.92 Cash inflows                     2.00                  0.6349        2,850.00           1,809.50 Cash inflows                     3.00                  0.5059        2,850.00           1,441.83 Cash inflows                     4.00                  0.4031        2,850.00           1,148.87 Cash inflows                     5.00                  0.3212        2,850.00               915.43 Cash inflows                     6.00                  0.2559        2,850.00               729.43 Cash inflows                     7.00                  0.2039        2,850.00               581.22 Cash inflows                     8.00                  0.1625        2,850.00               463.12 Cash inflows                     9.00                  0.1295        2,850.00               369.02 PV of Cash Inflows           9,360.31 NPV               (39.69) NPV @25%                   87.40 NPV @25.5%                (39.69) NPV @.5%                127.09 IRR = 25% + .5%*87.40/127.09 IRR = 25.34% Approx At discount rate of 25.34% company wil be indifferent about accepting and rejecting project

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.