A project that provides annual cash flows of $17,200 for eight years costs $78,0

Question

A project that provides annual cash flows of $17,200 for eight years costs $78,000 today.

What is the NPV for the project if the required return is 7 percent? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.)

At a required return of 7 percent, should the firm accept this project?

What is the NPV for the project if the required return is 19 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 19 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 $17,200 for eight years costs $78,000 today.

Explanation / Answer

Year Cash inflows Discount@7% PV cash flows

1 17200 0.9346 16075.12

2 17200 0.8734 15022.48

3 17200 0.8163 14040.36

4 17200 0.7629 13121.88

5 17200 0.7130 12263.6

6 17200 0.6663 11460.36

7 17200 0.6227 10710.44

8 17200 0.5820 10010.4

Total PV cash inflows 102704.64

initial investment (78000)

NPV 24704.64

NPV is positive. so, it is accepting the project

Year Cash inflows Discount@19% PV cash flows

1 17200 0.8403 14453.16

2 17200 0.7062 12146.64

3 17200 0.5934 10206.48

4 17200 0.4987 8577.64

5 17200 0.4190 7206.8

6 17200 0.3521 6056.12

7 17200 0.2959 5089.48

8 17200 0.2487 4277.64

Total PV cash inflows 68013.96

initial investment (78000)

NPV (9986.04).

NPV is negative. so, it is rejecting the project.

At 7% discount rate , NPV is accepting the project.

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