A project that provides annual cash flows of $17.400 for ten years costs $80.000

Question

A project that provides annual cash flows of $17.400 for ten years costs $80.000 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)) NPV $ At a required return of 9 percent. should the firm accept this project? Accept Reject 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 $ At a required return of 21 percent. should the firm accept this project? Accept Reject 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)) Discount rate %

Explanation / Answer

1.

Accept the project as the NPV is positive

2. NPV at 21%:

Reject, as the NPV is negative

3.

We should be indifferent at 17.36%

Year Cash Flows present value 0 -80000 -80000 1 17400 15963.30 2 17400 14645.23 3 17400 13435.99 4 17400 12326.60 5 17400 11308.81 6 17400 10375.05 7 17400 9518.40 8 17400 8732.47 9 17400 8011.44 10 17400 7349.95 NPV 31667.24

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