A project that provides annual cash flows of $17,900 for nine years costs $85,00

Question

A project that provides annual cash flows of $17,900 for nine years costs $85,000 today.

What is the NPV for the project if the required return is 8 percent? (Round your answer to 2 decimal places. (e.g., 32.16))

At a required return of 8 percent, should the firm accept this project?

What is the NPV for the project if the required return is 20 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 20 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))

What is the NPV for the project if the required return is 8 percent? (Round your answer to 2 decimal places. (e.g., 32.16))

Explanation / Answer

NPV for the project if the required return is 8 percent = -$85,000 + 17,900/1.08 + 17,900/1.08^2 + 17,900/1.08^3 +17,900/1.08^4 + 17,900/1.08^5 + 17,900/1.08^6 +17,900/1.08^7 + 17,900/1.08^8 + 17,900/1.08^9 =$26,819.29

At a required return of 8 percent, the firm should accept this project

NPV for the project if the required return is 20 percent = -$85,000 + 17,900/1.2 + 17,900/1.2^2 + 17,900/1.2^3 +17,900/1.2^4 + 17,900/1.2^5 + 17,900/1.2^6 +17,900/1.2^7 + 17,900/1.2^8 + 17,900/1.2^9 =

At a required return of 20 percent, the firm should Reject this project?

Let indifferent rate = r

-$85,000 + 17,900/(1+r) + 17,900/(1+r)^2 + 17,900/(1+r)^3 +17,900/(1+r)^4 + 17,900/(1+r)^5 + 17,900/(1+r)^6 +17,900/(1+r)^7 + 17,900/(1+r)^8 + 17,900/(1+r)^9

r= 15.14%

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