A project that provides annual cash flows of $16,900 for eight years costs $75,0

Question

A project that provides annual cash flows of $16,900 for eight years costs $75,000 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.) NPV $ At a required return of 7 percent, should the firm accept this project? Accept Reject What is the NPV for the project if the required return 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.) NPV $ At a required return of 19 percent, should the firm accept this project? Accept Reject 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.) Discount rate %

A project that provides annual cash flows of $16,900 for eight years costs $75,000 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.) NPV At a required return of 7 percent, should the firm accept this project? Accept Reject What is the NPV for the project if the required return 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.) NPV At a required return of 19 percent, should the firm accept this project? Accept Reject 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.) Discount rate

Explanation / Answer

CF0 = -75,000

CF1 = 16,900

CF2 = 16,900

CF3 = 16,900

CF4 = 16,900

CF5 = 16,900

CF6 = 16,900

CF7 = 16,900

CF8 = 16,900

Discount Rate = 7%

NPV = -75,000 + 16,900/ (1.07)1 + 16,900/ (1.07)2 + ..............+ 16,900/ (1.07)8

NPV = 25,914.94

As NPV is positive we will accept the project

Part B

Discount rate = 19%

CF0 = -75,000

CF1 = 16,900

CF2 = 16,900

CF3 = 16,900

CF4 = 16,900

CF5 = 16,900

CF6 = 16,900

CF7 = 16,900

CF8 = 16,900

NPV = -75,000 + 16,900/ (1.19)1 + 16,900/ (1.19)2 + ..............+ 16,900/ (1.19)8

NPV = -8,171.22

Part C

To calculate the indifferent rate, we neet to find rate at which NPV is 0, which would be known as IRR

CF0 = -75,000

CF1 = 16,900

CF2 = 16,900

CF3 = 16,900

CF4 = 16,900

CF5 = 16,900

CF6 = 16,900

CF7 = 16,900

CF8 = 16,900

75,000 = 16,900/ (1 + r)1 + 16,900/ (1 + r)2 + ..............+ 16,900/ (1 + r)8

r = 15.34%

At 15.34%we are indifferent between accpeting or rejecting the project

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