A firm evaluates all of its projects by applying the NPV decision rule. A projec

Question

A firm evaluates all of its projects by applying the NPV decision rule. A project under consideration has the following cash flows: Year Cash Flow 0 –$ 27,300 1 11,300 2 14,300 3 10,300 What is the NPV for the project if the required return is 10 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV $ At a required return of 10 percent, should the firm accept this project? No Yes What is the NPV for the project if the required return is 26 percent? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV $ At a required return of 26 percent, should the firm accept this project? Yes No

Explanation / Answer

Year Cash Flows Present Value Factor@10% Present Value Present Value Factor@26% Present Value 0 -27300 1.0000 -27300.000 1.0000 -27300.000 1 11300 0.9091 10272.727 0.7937 8968.254 2 14300 0.8264 11818.182 0.6299 9007.307 3 10300 0.7513 7738.542 0.4999 5149.032 Net Present Value 2529.452 -4175.407

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