1. Compute the NPV for Project M if the appropriate cost of capital is 9 percent
ID: 2798518 • Letter: 1
Question
1.
Compute the NPV for Project M if the appropriate cost of capital is 9 percent. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your final answer to 2 decimal places.)
Project M
2.
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 8 percent, and that the maximum allowable payback and discounted payback statistics for the project are 2.0 and 3.0 years, respectively.
Use the IRR decision rule to evaluate this project. (Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places.)
Compute the NPV for Project M if the appropriate cost of capital is 9 percent. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your final answer to 2 decimal places.)
Explanation / Answer
1 calculation of the net present value of the project m 1 years 1 2 3 4 5 2 cash flows 630 760 800 880 380 3 PVRF at 9 % 0.9174 0.8417 0.7722 0.7084 0.6499 4 present value cash flows ( 2 * 3 ) 578 640 618 623 247 5 total present value 2706 6 initial cash outlay 2400 7 net present value ( 5 - 6 ) 306 2 calculation of the net present value of the project 1 years 1 2 3 4 5 6 2 cash flows 1080 2280 1480 1480 1280 1080 3 PVRF at 8 % 0.9259 0.8573 0.7938 0.7350 0.6806 0.6302 4 present value cash flows ( 2 * 3 ) 1000 1955 1175 1088 871 681 5 total present value 6769 6 initial cash outlay 8600 7 net present value ( 5 - 6 ) -1831 calculation of payback period 1 years 1 2 3 4 5 6 2 cash flows 1080 2280 1480 1480 1280 1080 3 cumulative cash flows 1080 3360 4840 6320 7600 8680 payback period is the time required to collect the initial cash outlay initial cash outlay 8600 cumulative cash flows till 5 th year 7600 remaining cash flows to be collected in 6 th year 8600- 7600 1000 time required to calculate the cash flows in 6 th year 1000 / 1080 0.93 payback period 6 years + 0.93 years 6.93 years calculation of the discounted payback period 1 years 1 2 3 4 5 6 2 cash flows 1080 2280 1480 1480 1280 1080 3 PVRF at 7 % 0.9259 0.8573 0.7938 0.7350 0.6806 0.6302 4 present value cash flows ( 2 * 3 ) 1000 1955 1175 1088 871 681 5 cumulative cash flows 1000 2955 4130 5217 6089 6769 payback period is the time required to collect the initial cash outlay initial cash outlay 8600 cumulative cash flows till 6th year 6769 the initial outlay has not been collected during the life of the project calculation of the internal rate of return years 0 1 2 3 4 5 6 total cash flow -8600 1080 2280 1480 1480 1280 1080 internal rate of return using excel .=irr( cash flows from year 0 to 6 ) 0.28% the project shall not be accepted as the net irr of the project 0.28 % is less than the cost of capital of 8 %
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.