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 $ =

Please make answers clear.

Explanation / Answer

If Required rate of return is 12% then Net Present value will be as under

-$28100

If Required Rate of Return is 24% then NPV will be as follows

-$28100

If Required rate of Return is 24% then the project is not viable as the NPV is negative.

Year Cash Flow PV Factor Net Present Value 0

-$28100

1.00 -$28100 1 $12100 0.892857 $10803.57 2 $15100 0.7971938 $12037.63 3 $11100 0.7117802 $7900.76 Net Present Value $2641.96

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