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: What is the NPV for the project if the required return is 11 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) At a required return of 11 percent, should the firm accept this project? No Yes What is the NPV for the project if the required return is 25 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 25 percent, should the firm accept this project? Yes No

Explanation / Answer

1.NPV= Future Cash flow discounted to present value- cash outflow

= (12300/1.11+15300/1.112+11,300/1.113)- 28300

=3461.37

2. As the NPV is positive for 11% return, so it should accept the project

3. If rate is 25%

NPV= (12300/1.25+15300/1.252+11,300/1.253)- 28300

= -2882.40

4.At 25% rate the firm should reject the project

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