An investment has an installed cost of $568,382. The cash flows over the four-ye
ID: 2714470 • Letter: A
Question
An investment has an installed cost of $568,382. The cash flows over the four-year life of the investment are projected to be $197,584, $241,318, $189,674, and $157,313.
If the discount rate is zero, what is the NPV?
If the discount rate is infinite, what is the NPV?
At what discount rate is the NPV just equal to zero? (
An investment has an installed cost of $568,382. The cash flows over the four-year life of the investment are projected to be $197,584, $241,318, $189,674, and $157,313.
Requirement 1:If the discount rate is zero, what is the NPV?
Requirement 2:If the discount rate is infinite, what is the NPV?
Requirement 3:At what discount rate is the NPV just equal to zero? (
Explanation / Answer
When Discount Rate of NPV is 0 Year Cash Flows 0 -568382 1 197584 2 241318 3 189674 4 157313 NPV 217507 When Discount Rate of NPV is Infinite Year Cash Flows 0 -568382 1 0 2 0 3 0 4 0 NPV -568382 All Future Cash Flows will be 0, as discouting rate in Infinite At what discount rate is the NPV just equal to zero? Year Cash Flows DF @15% 0 -568382 -568382 1 197584 0.86881 171662.9 2 241318 0.755421 182296.7 3 189674 0.656831 124583.7 4 157313 0.571108 89842.63 NPV 3.94315 At 15% NPV is almost 0
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