A project that provides annual cash flows of $16,600 for eight years costs $72,0

Question

A project that provides annual cash flows of $16,600 for eight years costs $72,000 today.

What is the NPV for the project if the required return is 7 percent? (Round your answer to 2 decimal places. (e.g., 32.16))

At a required return of 7 percent, should the firm accept this project?

Accept or Reject?

What is the NPV for the project if the required return is 19 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 19 percent, should the firm accept this project?

Accept or Reject?

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))

Discount Rate= ___%

Explanation / Answer

1) NPV @ 7%

= 16600*PVAF(7%,8 years) -72000

= (16600*5.9713)-72000

= 99123.58 - 72000 i.e 27123.58

Project should be accepted as the NPV is positive at 7%

2) NPV @ 19%

= 16600*PVAF ( 19%,8 years) -72000

= (16600*3.9544) -72000

= 65643 -72000 i.e -6356.96

Project should not be accepted as the NPV is negaive

Indifferent discount rate = 7% + 9.7216 i.e 16.7216%

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