Suppose your firm is considering investing in a project with the cash flows show

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 8 percent, and that the maximum allowable payback and discounted payback statistics for the project are 3.5 and 4.5 years, respectively. Time: 0 1 2 3 4 5 6 Cash flow –$4,900 $1,260 $2,460 $1,660 $1,660 $1,460 $1,260 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 8 percent, and that the maximum allowable payback and discounted payback statistics for the project are 3.5 and 4.5 years, respectively. Time: 0 1 2 3 4 5 6 Cash flow –$4,900 $1,260 $2,460 $1,660 $1,660 $1,460 $1,260 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 8 percent, and that the maximum allowable payback and discounted payback statistics for the project are 3.5 and 4.5 years, respectively. Time: 0 1 2 3 4 5 6 Cash flow –$4,900 $1,260 $2,460 $1,660 $1,660 $1,460 $1,260 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.)

Explanation / Answer

NPV = Present Value of Cash Inflows - Present Value of Cash Outflows

= $ 1,260 * 1/(1.08) ^ 1 + $ 2,460 *  1/(1.08) ^ 2 + $ 1,660  *1/(1.08) ^ 3 + $ 1,660 * 1/(1.08) ^ 4 + $ 1,460 * 1/(1.08) ^ 5 + $ 1,260 *  1/(1.08) ^ 6 - $ 4,900

= $ 2,701.30

Since the NPV is positive, the project can be accepted.

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