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. 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).) 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).) 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).)

Explanation / Answer

Reqmt 1 Statement showing Cash flows Particulars Time PVf@9% Amount PV Cash Outflows                  -                1.00         (10,100.00)         (10,100.00) PV of Cash outflows = PVCO         (10,100.00) Cash inflows              1.00          0.9174              2,450.00              2,247.71 Cash inflows              2.00          0.8417              2,450.00              2,062.12 Cash inflows              3.00          0.7722              2,450.00              1,891.85 Cash inflows              4.00          0.7084              2,450.00              1,735.64 Cash inflows              5.00          0.6499              2,450.00              1,592.33 Cash inflows              6.00          0.5963              2,450.00              1,460.85 Cash inflows              7.00          0.5470              2,450.00              1,340.23 Cash inflows              8.00          0.5019              2,450.00              1,229.57 Cash inflows              9.00          0.4604              2,450.00              1,128.05 PV of Cash Inflows =PVCI            14,688.35 NPV = PVCI - PVCO              4,588.35 Reqmt 2 Statement showing Cash flows Particulars Time PVf@25% Amount PV Cash Outflows                  -                1.00         (10,100.00)         (10,100.00) PV of Cash outflows = PVCO         (10,100.00) Cash inflows              1.00          0.8000              2,450.00              1,960.00 Cash inflows              2.00          0.6400              2,450.00              1,568.00 Cash inflows              3.00          0.5120              2,450.00              1,254.40 Cash inflows              4.00          0.4096              2,450.00              1,003.52 Cash inflows              5.00          0.3277              2,450.00                  802.82 Cash inflows              6.00          0.2621              2,450.00                  642.25 Cash inflows              7.00          0.2097              2,450.00                  513.80 Cash inflows              8.00          0.1678              2,450.00                  411.04 Cash inflows              9.00          0.1342              2,450.00                  328.83 PV of Cash Inflows =PVCI              8,484.67 NPV = PVCI - PVCO            (1,615.33) Reqmt 3 Statement showing Cash flows Particulars Time PVf@20% Amount PV Cash Outflows                  -                1.00         (10,100.00)         (10,100.00) PV of Cash outflows = PVCO         (10,100.00) Cash inflows              1.00          0.8333              2,450.00              2,041.67 Cash inflows              2.00          0.6944              2,450.00              1,701.39 Cash inflows              3.00          0.5787              2,450.00              1,417.82 Cash inflows              4.00          0.4823              2,450.00              1,181.52 Cash inflows              5.00          0.4019              2,450.00                  984.60 Cash inflows              6.00          0.3349              2,450.00                  820.50 Cash inflows              7.00          0.2791              2,450.00                  683.75 Cash inflows              8.00          0.2326              2,450.00                  569.79 Cash inflows              9.00          0.1938              2,450.00                  474.83 PV of Cash Inflows =PVCI              9,875.87 NPV = PVCI - PVCO               (224.13) Statement showing Cash flows Particulars Time PVf@19% Amount PV Cash Outflows                  -                1.00         (10,100.00)         (10,100.00) PV of Cash outflows = PVCO         (10,100.00) Cash inflows              1.00          0.8403              2,450.00              2,058.82 Cash inflows              2.00          0.7062              2,450.00              1,730.10 Cash inflows              3.00          0.5934              2,450.00              1,453.87 Cash inflows              4.00          0.4987              2,450.00              1,221.74 Cash inflows              5.00          0.4190              2,450.00              1,026.67 Cash inflows              6.00          0.3521              2,450.00                  862.75 Cash inflows              7.00          0.2959              2,450.00                  725.00 Cash inflows              8.00          0.2487              2,450.00                  609.24 Cash inflows              9.00          0.2090              2,450.00                  511.97 PV of Cash Inflows =PVCI            10,200.16 NPV = PVCI - PVCO                  100.16 NPV @20%       (224.13) NPV @19%         100.16 Diff @1%       (324.30) IRR =19% + 100.16/324.30 IRR = 19.31% If disc rate is 19.31% we would be indifferent about accepting or rejecting the proposal

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