Consider the following cash flows: Year Cash Flow 0 –$ 34,000 1 14,600 2 17,100
ID: 2733335 • Letter: C
Question
Consider the following cash flows: Year Cash Flow 0 –$ 34,000 1 14,600 2 17,100 3 12,000 What is the NPV at a discount rate of 18 percent? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Net present value $ What is the NPV at a discount rate of 28 percent? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Net present value $
Explanation / Answer
Solution:
Calculation of NPV at a discount rate of 18%
Year
Cash Flow
PV factor @ 18%
Present Value of Cash Flow
0
-$34,000
1.000
-$34,000.00
1
$14,600
0.847
$12,372.88
2
$17,100
0.718
$12,280.95
3
$12,000
0.609
$7,303.57
Net Present Value (NPV)
-$2,042.59
Calculation of NPV at a discount rate of 28%
Year
Cash Flow
PV factor @ 28%
Present Value of Cash Flow
0
-$34,000
1.000
-$34,000.00
1
$14,600
0.781
$11,406.25
2
$17,100
0.610
$10,437.01
3
$12,000
0.477
$5,722.05
Net Present Value (NPV)
-$6,434.69
Year
Cash Flow
PV factor @ 18%
Present Value of Cash Flow
0
-$34,000
1.000
-$34,000.00
1
$14,600
0.847
$12,372.88
2
$17,100
0.718
$12,280.95
3
$12,000
0.609
$7,303.57
Net Present Value (NPV)
-$2,042.59
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