Problem 9-9 Calculating NPV and IRR [LO1, 5] A project that provides annual cash

Question

Problem 9-9 Calculating NPV and IRR [LO1, 5]

A project that provides annual cash flows of $16,400 for ten years costs $70,000 today.

What is the NPV for the project if the required return is 9 percent? (Round your answer to 2 decimal places. (e.g., 32.16))

At a required return of 9 percent, should the firm accept this project?

What is the NPV for the project if the required return is 21 percent? (Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places. (e.g., 32.16))

At a required return of 21 percent, should the firm accept this project?

At what discount rate would you be indifferent between accepting the project and rejecting it? (Round your answer to 2 decimal places. (e.g., 32.16))

A project that provides annual cash flows of $16,400 for ten years costs $70,000 today.

Explanation / Answer

A project that provides annual cash flows of $16,400 for ten years costs $70,000 today.

At a required return of 9 percent, should the firm accept this project?

What is the NPV for the project if the required return is 21 percent? (Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places. (e.g., 32.16))

  NPV = -70000 +16400/1.21 + 16400/1.21^2 + 16400/1.21^3 ...................16400/1.21^10 =-$3,513.12

At a required return of 21 percent, should the firm accept this project?

At what discount rate would you be indifferent between accepting the project and rejecting it? (Round your answer to 2 decimal places. (e.g., 32.16))

For Indifference, NPV=0

Let discount rate =r

-70000 +16400/(1+r) + 16400/(1+r)^2 + 16400/(1+r)^3 ...................16400/(1+r)^10 =0

r= 19.48%

A project that provides annual cash flows of $16,400 for ten years costs $70,000 today.

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