Suppose your firm is considering investing in a project with the cash flows show
ID: 2749949 • Letter: S
Question
Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 12 percent, and that the maximum allowable payback and discounted payback statistic for the project are 2 and 3 years, respectively. Time 0 1 2 3 4 5 6 Cash Flow -1,030 130 470 670 670 270 670 Use the NPV decision rule to evaluate this project; should it be accepted or rejected?
answer options:
$764.37, accept
$-415.63, reject
$1,886.09, accept
$856.09, accept
Explanation / Answer
$856.09, accept
Time Cash Flow PVF Amount ( CI * PFV)
0 (1,030) 1 (1030)
1 130 .893 116.07
2 470 .797 374.59
3 670 .712 477.04
4 670 .636 426.12
5 270 .567 153.09
6 670 .507 339.69
NPV = 856.09 (approx)
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