Suppose your firm is considering investing in a project with the cash flows show
ID: 2793917 • 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 9 percent, and that the maximum allowable payback and discounted payback statistics for the project are 2.0 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. Round your final answer to 2 decimal places.)
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 9 percent, and that the maximum allowable payback and discounted payback statistics for the project are 2.0 and 3.0 years, respectively.
Explanation / Answer
Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)
=1190/1.09+2390/1.09^2+1590/1.09^3+1590/1.09^4+1390/1.09^5+1190/1.09^6
=$7070.49
NPV=Present value of inflows-Present value of outflows
=$7070.49-$7600
-$529.51(Approx)(Negative)
Since NPV is negative;the project should be rejected.
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