Problem 9-18 NPV and Discount Rates [LO1] An investment has an installed cost of

Question

Problem 9-18 NPV and Discount Rates [LO1]

An investment has an installed cost of $529,800. The cash flows over the four-year life of the investment are projected to be $219,850, $236,450, $203,110, and $151,820.

If the discount rate is zero, what is the NPV? (Do not round intermediate calculations.)

  

  

If the discount rate is infinite, what is the NPV? (Negative amount should be indicated by a minus sign.)

  

  

At what discount rate is the NPV just equal to zero? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

  

An investment has an installed cost of $529,800. The cash flows over the four-year life of the investment are projected to be $219,850, $236,450, $203,110, and $151,820.

Explanation / Answer

IF DISCOUNT RATE IS ZERO

IF DISCOUNT RATE IS INFINITE

NPV = -529800

Because when discount rate is infinite, future cash flows has zero value today.

Year Cash OutflowsFlows PVF@ 10 % PV 0 -529800 1 -529800 1 219850 1.000 219850 2 236450 1.000 236450 3 203110 1.000 203110 4 151820 1.000 151820 NPV 281430

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