Suppose your firm is considering investing in a project with cash flow shown bel

ID: 2615643 • Letter: S

Question

Suppose your firm is considering investing in a project with cash flow shown below, the required rate of return on projects of this race class is 13%, and at the maximum allowable payback and discounted payback statistic for your company or 2.5 and 3.0 years, respectively. time 0 1 2 3 4 5 cash flow -$365,000 $64,000 $83,000 $140,000 $121,000 $80,200 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 13 percent, and that the maximum allowable payback and discounted payback statistics for your company are 2.5 and 3 0 years, respectively Time Cash flow 5 -$365,000 $64,800 $83,000 $140,000 $121.000 $80 200 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.) NPV Should it be accepted or rejected? Rejected Accepted

Explanation / Answer

Year

Cash Flow ( c )

PV Factor Calculation

PV Factor(P)

PV (=C x P)

($365,000)

1/(1+0.13)^0

($365,000.00)

$64,800

1/(1+0.13)^1

0.884955752

$57,345.13

$83,000

1/(1+0.13)^2

0.783146683

$65,001.17

$140,000

1/(1+0.13)^3

0.693050162

$97,027.02

$121,000

1/(1+0.13)^4

0.613318728

$74,211.57

$80,200

1/(1+0.13)^5

0.542759936

$43,529.35

NPV

($27,885.76)

NPV= -$27,885.76

Project should be rejected as NPV is negative