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:

Year Cash Flow year 0. –$ 28,100

                          year 1. $ 12,100

                          year 2. $ 15,100

                          year 3. $ 11,100

What is the NPV for the project if the required return is 12 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

NPV $ =

What is the NPV for the project if the required return is 24 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.)

NPV $ =

Explanation / Answer

NPV at required return of 12% = -$28,100 + $12,100/(1+12%) + $15,100/(1+12%)2 + $11,100/(1+12%)3

= $2,641.96

NPV at required return of 24% = -$28,100 + $12,100/(1+24%) + $15,100/(1+24%)2 + $11,100/(1+24%)3

= -$2,699.63

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