An investment has an installed cost of $567,382. The cash flows over the four-ye

Question

An investment has an installed cost of $567,382. The cash flows over the four-year life of the investment are projected to be $196,584, $240,318, $188,674, and $156,313.

If the discount rate is zero, what is the NPV? (Do not round intermediate calculations.)

If the discount rate is infinite, what is the NPV? (Do not round intermediate calculations. Negative amount should be indicated by a minus sign.)

At what discount rate is the NPV just equal to zero? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)

An investment has an installed cost of $567,382. The cash flows over the four-year life of the investment are projected to be $196,584, $240,318, $188,674, and $156,313.

Explanation / Answer

Requirement 1

If the discount Rate were Zero , the NPV would be the Sum of the Net Cash Flows

There for the NPV = -$567382+$196584+$240318+$188674+$156313

                                    =$214507

Requirement 2

At an infinite Discount rate all the positive cash flows converge to Zero. So the NPV Equals to the Cost of project

That is $567382

Requirement 3

NPV= 0

-$567382+$196584/1+R+$240318/1+R2+$188674/1+R3+$156313/1+R4=0

Let us try a discount rate of 15%

-$567382+$196584/1.15+$240318/1.152+$188674/1+1.153+$156313/1+1.154=0

-$567382+$170942.61+$181714.93+$124056.22+$89372.47=-$1296                

As the Result is Negative and near to zero Let us Try Discount rate of 14.75%

-$567382+$+$175315.03+$182507.58+$124868.81+$90153.86=$1463

So the result may be in between 14.75% to 15%

And on our try we could reach at a rate of 14.88%

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

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