K Question 2 (of 5) 2 value 10.00 points A project that provides annual cash flo
ID: 2795571 • Letter: K
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K Question 2 (of 5) 2 value 10.00 points A project that provides annual cash flows of $16,300 for eight years costs $69,000 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 retum of 7 percent, should the firm accept this project? Accept Reject What is the NPV for the project if the required retum 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 fim accept this project? Reject At what discount rate would you be indifferent between accepting the project and rejecting it? (Do not 32.16.) ations. Enter your answer as a percent rounded to 2 decimal places, e.g nt rate Hints References eBook & ResourcesExplanation / Answer
TOTAL inflow at present value= $ 97,332
TOTAL Outflow= $ 69,000
NPV= 97,332-69,000 = $ 28,332
2. Firm should accept the project as NPV is positive
TOTAL inflow at present value= $ 64,456
TOTAL Outflow= $ 69,000
NPV= 97,332-69,000 = $ (4,544)
4. At 19% rate of return, firm should not accept the project as NPV is negative.
5. Indifference point would be the rate of return where PV of inflows equals the Outflow. that is IRR- Internal Rate of Return
At 16 % rate of return NPV is positive $ 1,800 and at 17% NPV is negative $ 423. so indifference point is somewhere between 16 % to 17%
16% + (17%-16%) x 1800/ (1800+423)
=16.80%
At 16.80% Firm's present value of Inflows equals the Outflows.
Cash Flow Rate of return @7% Present Value Year 1 16,300 0.9346 15,234 Year 2 16,300 0.8734 14,237 Year 3 16,300 0.8163 13,306 Year 4 16,300 0.7629 12,435 Year 5 16,300 0.7130 11,622 Year 6 16,300 0.6663 10,861 Year 7 16,300 0.6227 10,151 Year 8 16,300 0.5820 9,487Related Questions
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