A firm evaluates all of its projects by applying the NPV decision rule. A projec

Question

A firm evaluates all of its projects by applying the NPV decision rule. A project under consideration has the following cash flows:

What is the NPV for the project if the required return is 11 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

What is the NPV for the project if the required return is 25 percent? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Explanation / Answer

Details Year 0 Year 1 Year 2 Year 3 Initial cost              (27,500) Cash Inflow                   11,500.0                   14,500.0            10,500.0 Discount Factor @ 11% 1                         0.901                         0.812                  0.731 PV of cash Inflows                   10,360.4                   11,768.5              7,677.5 Total PV of Cash inflows             29,806.4 NPV $         2,306.40 As NPV is positive at 11% required return rate , the project should be accepted NPV @25% required rate Details Year 0 Year 1 Year 2 Year 3 Initial cost              (27,500) Cash Inflow                   11,500.0                   14,500.0            10,500.0 Discount Factor @ 25% 1                         0.800                         0.640                  0.512 PV of cash Inflows                     9,200.0                     9,280.0              5,376.0 Total PV of Cash inflows             23,856.0 NPV $      (3,644.00) As NPV is negative at 25% required return rate , the project should be not accepted

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