[what i would like to know is what i need to plug in to my financial calculator]
ID: 2652098 • Letter: #
Question
[what i would like to know is what i need to plug in to my financial calculator]
An investment has an installed cost of $400,000. The cash flows over the five-year life of the investment are projected to be $240,000, $163,200, $124,032, $104,187, and $95,852 respectively.
c) At what discount rate is the NPV just equal to zero? (In percentage form, rounded to the nearest whole percent)
The correct answer was: 30.00%
Let's denote r as the discount rate.
By using a financial calculator or by trial and error, the discount rate = 30%
You will lose 2 marks for this part.
d) Complete the following table.
Discount rateNPV1%$414%$428%$332%$342%$3
Marking:
NPV at 1% discount rate should be $309,313.86
NPV at 14% discount rate should be $131,291.08
NPV at 28% discount rate should be $12,961.73
NPV at 32% discount rate should be -$12,354.16
NPV at 42% discount rate should be -$64,504.82
Explanation / Answer
Statement showing NPV Particulars Time PVF Amount PV Cash Outflows - 1.00 (400,000.00) (400,000.00) PV of Cash outflows (400,000.00) Cash Inflows 1.00 0.7692 240,000.00 184,615.38 Cash Inflows 2.00 0.5917 163,200.00 96,568.05 Cash Inflows 3.00 0.4552 124,032.00 56,455.17 Cash Inflows 4.00 0.3501 104,187.00 36,478.76 Cash Inflows 5.00 0.2693 95,852.00 25,815.73 PV of Cash Inflows 399,933.09 NPV (66.91) IRR is 30% as NPV is 0 Time PVF WN 1.00 0.7692 1/1.30 2.00 0.5917 .7692/1.30 3.00 0.4552 .5917/1.30 4.00 0.3501 .4552/1.30 5.00 0.2693 .3501/1.30
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