A project that provides annual cash flows of $14,700 for 7 years costs $71,566 t
ID: 2713555 • Letter: A
Question
A project that provides annual cash flows of $14,700 for 7 years costs $71,566 today. If the required return is 14 percent, the NPV for the project is $________ and you would __________ (Accept or Reject) the project. At a discount rate of _______ percent, you would be indifferent between accepting the project and rejecting it
A project that provides annual cash flows of $14,700 for 7 years costs $71,566 today. If the required return is 14 percent, the NPV for the project is $________ and you would __________ (Accept or Reject) the project. At a discount rate of _______ percent, you would be indifferent between accepting the project and rejecting it
Explanation / Answer
NPV = -8517.92/ Reject project as NPV is negative
Indifference rate is the rate at which NPV = 0
WACC = 14.000% Year 0 1 2 3 4 5 6 7 Cash flow stream -71556 14700 14700 14700 14700 14700 14700 14700 Discounting factor 1 1.14 1.2996 1.481544 1.68896 1.925415 2.194973 2.502269 Discounted cash flows project -71556 12894.74 11311.17 9922.081 8703.58 7634.719 6697.122 5874.669 Sum of discounted future cashflows = -8517.92 Discounting factor = (1 + Required rate)^(CORRESPONDING PERIOD IN YEARS) Discounted Cashflow= Cash flow stream/discounting factorRelated Questions
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