Compute the NPV of the following project using discount rates of 10% and 20% P r
ID: 2717645 • Letter: C
Question
Compute the NPV of the following project using discount rates of 10% and 20%
Project A: C0 C1 C2
–7,500 5000 5000
Thompson Industries has a project with the following projected cash flows:
Cash flow year 0: ($240,000)
Cash flow year 1: $25,000
Cash flow year 2: $75,000
Cash flow year 3: $150,000
Cash flow year 4: $150,000
Using a 10% discount rate for this project, what is the NPV of this project? Should the
project be accepted or rejected?
Your required rate of return is 8%. If you invest $15,000 today in a project, you will receive the following cash flows:
At the end of Year 1 $7000
At the end of Year 2 $8000
At the end of Year 3 $9000
What is the NPV of the project? What is the payback period of the project?
How to compute a project’s IRR?
Explanation / Answer
NPV at 10%
Year
Cash Flow
PV factor 10%
PV
0
-7500
1.0000
-7500.00
1
5000
0.9091
4545.45
2
5000
0.8264
4132.23
NPV
1177.69
NPV at 20%
Year
Cash Flow
PV factor 20%
PV
0
-7500
1.0000
-7500.00
1
5000
0.8333
4166.67
2
5000
0.6944
3472.22
NPV
138.89
Hence, At 10% discount rate, NPV is 1177.69 and at 20% discount rate NPV is 138.89.
Year
Cash Flow
PV factor 10%
PV
0
-7500
1.0000
-7500.00
1
5000
0.9091
4545.45
2
5000
0.8264
4132.23
NPV
1177.69
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