A firm evaluates all of its projects by applying the NPV decision rule. A projec
ID: 2777043 • Letter: A
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 –$ 29,000 1 13,000 2 16,000 3 12,000 What is the NPV for the project if the required return is 12 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV $ At a required return of 12 percent, should the firm accept this project? No Yes What is the NPV for the project if the required return is 24 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 $
Explanation / Answer
Particulars Time PVf@12% Amount PV Cash Outflows - 1.00 (29,000.00) (29,000.00) PV of Cash outflows (29,000.00) Cash inflows 1.00 0.8929 13,000.00 11,607.14 Cash inflows 2.00 0.7972 16,000.00 12,755.10 Cash inflows 3.00 0.7118 12,000.00 8,541.36 PV of Cash Inflows 32,903.61 NPV 3,903.61 Yes Firm should accept the project as NPV is positive Particulars Time PVf@24% Amount PV Cash Outflows - 1.00 (29,000.00) (29,000.00) PV of Cash outflows (29,000.00) Cash inflows 1.00 0.8065 13,000.00 10,483.87 Cash inflows 2.00 0.6504 16,000.00 10,405.83 Cash inflows 3.00 0.5245 12,000.00 6,293.85 PV of Cash Inflows 27,183.55 NPV (1,816.45) No Firm should not accept the project as NPV is Negaitive
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