A project that provides annual cash flows of $2,500 for nine years costs $10,300

Question

A project that provides annual cash flows of $2,500 for nine years costs $10,300 today.

At a required return of 10 percent, what is the NPV of the project? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

At a required return of 26 percent, what is the NPV of the project? (Do not round intermediate calculations. A negative amount should be indicated by a minus sign. Round your answer to 2 decimal places (e.g., 32.16).)

At what discount rate would you be indifferent between accepting the project and rejecting it? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).

At a required return of 10 percent, what is the NPV of the project? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

Explanation / Answer

A project that provides annual cash flows of $2,500 for nine years costs $10,300 today.

Requirement 1:

At a required return of 10 percent, what is the NPV of the project? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

NPV = -Initial Investment + Annual Cash Flow *((1+i)^n-1)/(i*(1+i)^n)

NPV = - 10300 + 2500*((1+10%)^9-1)/(10%*(1+10%)^9)

NPV = $ 4097.56

Requirement 2:

At a required return of 26 percent, what is the NPV of the project? (Do not round intermediate calculations. A negative amount should be indicated by a minus sign. Round your answer to 2 decimal places (e.g., 32.16).)

NPV = -Initial Investment + Annual Cash Flow *((1+i)^n-1)/(i*(1+i)^n)

NPV = - 10300 + 2500*((1+26%)^9-1)/(26%*(1+26%)^9)

NPV = - $ 1885.86

Requirement 3:

At what discount rate would you be indifferent between accepting the project and rejecting it? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).

Discounting rate (indifferent between accepting the project and rejecting it) = rate(nper,pmt,pv,fv)

Discounting rate (indifferent between accepting the project and rejecting it) = rate(9,2500,-10300,0)

Discounting rate (indifferent between accepting the project and rejecting it) = 19.32%

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

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