Suppose your firm is considering investing in a project with the cash flows show
ID: 2794406 • 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 3.5 and 4.5 years, respectively.
Use the NPV decision rule to evaluate this project.
NPV $___________
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 3.5 and 4.5 years, respectively.
Explanation / Answer
Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)
=1280/1.09+2480/1.09^2+1680/1.09^3+1680/1.09^4+1480/1.09^5+1280/1.09^6
=$7474.22
NPV=Present value of inflows-Present value of outflows
=$7474.22-$5100
=2374.22(Approx)
Hence since NPV is positive;the project should be accepted.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.