Suppose your firm is considering investing in a project with the cash flows show
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Question
Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 12 percent, and that the maximum allowable payback and discounted payback statistics for your company are 2.5 and 3.0 years, respectively.
Use the NPV decision rule to evaluate this project. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your final answer to 2 decimal places.)
Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 12 percent, and that the maximum allowable payback and discounted payback statistics for your company are 2.5 and 3.0 years, respectively.
Explanation / Answer
Project should be rejected as NPV is negative Statement showing Cash flows Particulars Time PVf 12% Amount PV Cash Outflows - 1.00 (361,000.00) (361,000.00) PV of Cash outflows = PVCO (361,000.00) Cash inflows 1.00 0.8929 65,200.00 58,214.29 Cash inflows 2.00 0.7972 83,400.00 66,485.97 Cash inflows 3.00 0.7118 140,400.00 99,933.95 Cash inflows 4.00 0.6355 121,400.00 77,151.89 Cash inflows 5.00 0.5674 80,600.00 45,734.60 PV of Cash Inflows =PVCI 347,520.70 NPV= PVCI - PVCO (13,479.30)
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