A project that provides annual cash flows of $3,050 for nine years costs $10,200

Question

A project that provides annual cash flows of $3,050 for nine years costs $10,200 today. Requirement 1: At a required return of 11 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 Requirement 2: At a required return of 27 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 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).) Discount rate

Explanation / Answer

1)

NPV = -10200 + 3050 * [1-(1+11%)^-9]/11%

= $6.688.00

2)

NPV = -10200 + 3050 * [1-(1+27%)^-9]/27%

= -$218.03

3)

the firm would be indifferent when NPV =0
=>
0 = -10200 + 3050 * [1-(1+IRR%)^-9]/IRR%

IRR = 26.23%

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