A project that provides annual cash flows of $16,400 for ten years costs $70,000

Question

A project that provides annual cash flows of $16,400 for ten years costs $70,000 today.

What is the NPV for the project if the required return is 9 percent? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.)

At a required return of 9 percent, should the firm accept this project?

What is the NPV for the project if the required return is 21 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.)

At a required return of 21 percent, should the firm accept this project?

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 percent rounded to 2 decimal places, e.g., 32.16.)

A project that provides annual cash flows of $16,400 for ten years costs $70,000 today.

Explanation / Answer

All Amounts in $ At a required return of 9 percent, the Net Present Value of the project is $ 32,339.07 Since the Net Present Value is positive, the firm should accept the project at a return of 9 percent. At a required return of 21 percent, the Net Present Value of the project is -$ 2,903.41 Since the Net Present Value is negative, the firm should reject the project at a return of 21 percent. The discount rate at which we would be indifferent between accepting and rejecting the project will be the IRR thereof, which, based on the information given, works out to 19.48%

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.