A project that provides annual cash flows of $1,930 for 8 years costs $7,700 tod

Question

A project that provides annual cash flows of $1,930 for 8 years costs $7,700 today. Requirement 1: At a required return of 8 percent, what is the NPV of the project? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) NPV $ Requirement 2: At a required return of 24 percent, what is the NPV of the project? (Do not round intermediate calculations. A negative amount should be indicated by a minus sign. Round your answer to 2 decimal places (e.g., 32.16).) NPV $ Requirement 3: At what discount rate would you be indifferent between accepting the project and rejecting it? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).) Discount rate %

Explanation / Answer

1)

NPV = -Initial Investment + Annual Cash Flow*(1-(1+r)^-n)/r

NPV = -7700 + 1930*(1-(1+8%)^-8)/8%

NPV = $ 3391.01

2)

NPV = -Initial Investment + Annual Cash Flow*(1-(1+r)^-n)/r

NPV = -7700 + 1930*(1-(1+24%)^-8)/24%

NPV = - 1097.04

3)

Discount rate = rate(nper,pmt,pv,fv)

Discount rate = rate(8,1930,-7700,0)

Discount rate = 18.71%

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