Suppose your firm is considering investing in a project with the cash flows show
ID: 2714206 • Letter: S
Question
Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 10 percent, and that the maximum allowable payback and discounted payback statistics for your company are 3.0 and 3.5 years, respectively.
Use the NPV decision rule to evaluate this project. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your final answer to 2 decimal places.)
What is the NPV? Should the project be accepted or rejected?
Time: 0 1 2 3 4 5 Cash flow –$354,000 $66,700 $84,900 $141,900 $122,900 $82,100Explanation / Answer
NPV = -354000 + 66700/1.1 + 84900/1.1^2 + 141900/1.1^3 + 122900/1.1^4 + 82100/1.1^5
= 18333.22
since NPV is positve , project should be accepted
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