Suppose your firm is considering investing in a project with the cash flows show
ID: 2766096 • 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 statistics for your company are 2.5 and 3.0 years, respectively. Use the NPV decision rule to evaluate this project. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your final answer to 2 decimal places.) Should it be accepted or rejected? Accepted RejectedExplanation / Answer
Answer
Figures in $
Year
Cash flow
Disc Rate : 12%
Present value
A
B
A*B
0
-363000
1
-363000
1
65000
0.893
58035.71
2
83200
0.797
66326.53
3
140200
0.712
99791.59
4
121200
0.636
77024.79
5
80400
0.567
45621.12
Net present value
-16200.25
Answer : Project should be rejected as NPV is negative (-16200.25)
Figures in $
Year
Cash flow
Disc Rate : 12%
Present value
A
B
A*B
0
-363000
1
-363000
1
65000
0.893
58035.71
2
83200
0.797
66326.53
3
140200
0.712
99791.59
4
121200
0.636
77024.79
5
80400
0.567
45621.12
Net present value
-16200.25
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