An investment has an installed cost of $564,382. The cash flows over the four-ye

Question

An investment has an installed cost of $564,382. The cash flows over the four-year life of the investment are projected to be $193,584, $237,318, $185,674, and $153,313.

If the discount rate is zero, what is the NPV? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

NPV            $

If the discount rate is infinite, what is the NPV? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

NPV            $

At what discount rate is the NPV just equal to zero? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Discount rate

Explanation / Answer

Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

At discount rate of 0:

Present value of inflows=193584+237318+185674+153313=$769889

NPV=Present value of inflows-Present value of outflows

=($769889-$564382)=$205507

At infinite rate:

Present value of inflows would be equal to zero(since future cash flows would be equal to=0)

Hence NPV=(564382)(Negative)

c.

Let discount rate be x%

At this rate;present value of inflows=present value of outflows.

564382=193584/1.0x+237318/1.0x^2+185674/1.0x^3+153313/1.0x^4

Hence x=discount rate=14.37%(Approx).

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

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