A project that provides annual cash flows of $2,450 for nine years costs $10,100

Question

A project that provides annual cash flows of $2,450 for nine years costs $10,100 today.

Requirement 1: At a required return of 9 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 25 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. PMT = 2450
FV = 0
N = 9
I = 9

PV =14688.35
NPV = 14688.35 - 10100 = 4588.35

2. PMT = 2450
FV = 0
N = 9
I = 25

PV =8484.67
NPV = 8484.67 - 10100 = -1615.33

3.
PMT = 2450
FV = 0
N = 9
PV = -1000

I = 19.30

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