A project that provides annual cash flows of $17,000 for ten years costs $76,000
ID: 2775355 • Letter: A
Question
A project that provides annual cash flows of $17,000 for ten years costs $76,000 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 $17,000 for ten years costs $76,000 today.
Explanation / Answer
Statemnet showing Cash flows Particulars Time PVf@9% Amount PV Cash Outflows - 1.00 (76,000.00) (76,000.00) PV of Cash outflows (76,000.00) Cash inflows 1.00 0.9174 17,000.00 15,596.33 Cash inflows 2.00 0.8417 17,000.00 14,308.56 Cash inflows 3.00 0.7722 17,000.00 13,127.12 Cash inflows 4.00 0.7084 17,000.00 12,043.23 Cash inflows 5.00 0.6499 17,000.00 11,048.83 Cash inflows 6.00 0.5963 17,000.00 10,136.54 Cash inflows 7.00 0.5470 17,000.00 9,299.58 Cash inflows 8.00 0.5019 17,000.00 8,531.73 Cash inflows 9.00 0.4604 17,000.00 7,827.27 Cash inflows 10.00 0.4224 17,000.00 7,180.98 PV of Cash Inflows 109,100.18 NPV 33,100.18 Firm should accept the project since NPV is positive Statemnet showing Cash flows Particulars Time PVf@21% Amount PV Cash Outflows - 1.00 (76,000.00) (76,000.00) PV of Cash outflows (76,000.00) Cash inflows 1.00 0.8264 17,000.00 14,049.59 Cash inflows 2.00 0.6830 17,000.00 11,611.23 Cash inflows 3.00 0.5645 17,000.00 9,596.06 Cash inflows 4.00 0.4665 17,000.00 7,930.63 Cash inflows 5.00 0.3855 17,000.00 6,554.24 Cash inflows 6.00 0.3186 17,000.00 5,416.72 Cash inflows 7.00 0.2633 17,000.00 4,476.63 Cash inflows 8.00 0.2176 17,000.00 3,699.70 Cash inflows 9.00 0.1799 17,000.00 3,057.60 Cash inflows 10.00 0.1486 17,000.00 2,526.94 PV of Cash Inflows 68,919.33 NPV (7,080.67) No Firm should not accept the project since NPV is negative Statemnet showing Cash flows Particulars Time PVf@18% Amount PV Cash Outflows - 1.00 (76,000.00) (76,000.00) PV of Cash outflows (76,000.00) Cash inflows 1.00 0.8475 17,000.00 14,406.78 Cash inflows 2.00 0.7182 17,000.00 12,209.14 Cash inflows 3.00 0.6086 17,000.00 10,346.72 Cash inflows 4.00 0.5158 17,000.00 8,768.41 Cash inflows 5.00 0.4371 17,000.00 7,430.86 Cash inflows 6.00 0.3704 17,000.00 6,297.34 Cash inflows 7.00 0.3139 17,000.00 5,336.73 Cash inflows 8.00 0.2660 17,000.00 4,522.65 Cash inflows 9.00 0.2255 17,000.00 3,832.75 Cash inflows 10.00 0.1911 17,000.00 3,248.10 PV of Cash Inflows 76,399.47 NPV 399.47 Statemnet showing Cash flows Particulars Time PVf@18.2% Amount PV Cash Outflows - 1.00 (76,000.00) (76,000.00) PV of Cash outflows (76,000.00) Cash inflows 1.00 0.8460 17,000.00 14,382.40 Cash inflows 2.00 0.7158 17,000.00 12,167.85 Cash inflows 3.00 0.6055 17,000.00 10,294.29 Cash inflows 4.00 0.5123 17,000.00 8,709.22 Cash inflows 5.00 0.4334 17,000.00 7,368.20 Cash inflows 6.00 0.3667 17,000.00 6,233.67 Cash inflows 7.00 0.3102 17,000.00 5,273.84 Cash inflows 8.00 0.2625 17,000.00 4,461.79 Cash inflows 9.00 0.2220 17,000.00 3,774.78 Cash inflows 10.00 0.1879 17,000.00 3,193.55 PV of Cash Inflows 75,859.60 NPV (140.40) NPV @18% 399.47 NPV @18.2% (140.40) Diff for .2 539.87 IRR = 18% + .2* 399.47/539.87 IRR = 18.15% Approx
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