A project that provides annual cash flows of $11,700 for nine years costs $63,00

Question

A project that provides annual cash flows of $11,700 for nine years costs $63,000 today. What is the NPV for the project if the required return is 8 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV At a required return of 8 percent, should the firm accept this project? Accept O Reject What is the NPV for the project if the required return is 20 percent? (A negative answer 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 20 percent, should the firm accept this project? Accept O Reject

Explanation / Answer

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

= [ $ 11,700 * 1/(1.08) ^ 1 + $ 11,700 * 1/(1.08) ^2 +$ 11,700 * 1/(1.08) ^3+... $ 11,700 * 1/(1.08) ^9 ] - $ 63,000

= $ 10,088.59

Hence the correct answer is $ 10,088.59

Since the NPV is positve , the project must be accepted

Hence the correct answer is Accept.

---------

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

= [ $ 11,700 * 1/(1.20) ^ 1 + $ 11,700 * 1/(1.20) ^2 +$ 11,700 * 1/(1.20) ^3+... $ 11,700 * 1/(1.20) ^9 ] - $ 63,000

= - $ 15, 837.69

Hence the correct answer is - $ 15, 837.69

Since the NPV is negative , the project must be rejected

Hence the correct answer is Reject

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.