Aproject that provides annual cash flows of $18300 for ten years costs $89,000 t

Question

Aproject that provides annual cash flows of $18300 for ten years costs $89,000 today What is the NPV for the project if the required return is 9 percent? (Round your answer to 2 decimal places (e-g., 32.16) At a required return of 9 percent, shoud the finm accept this project? Accept Reject What is the NPV for the project if the required return is 21 percent? (Negathre amount should be indicated by a minus sign. Round your answer to 2 decimal places.(e., 32.16) imet places (e.g.,32. PV At a required return of 21 percent should the finm accept this project? Accept Reject At what discount rate would you be indifferent between accepting the project and rejecting it? (Round your answer to 2 decimal places. (.g, 32.16)) Discount rate

Explanation / Answer

At the required rate of 9% you should accept the project as the NPV is positive and at the required rate of 21% you should reject the project as the NPV is negative.

The discount rate at which we can be indifferent between accepting or rejecting the project is called the IRR.

Year Cashflow ROR Present Value NPV Year Cashflow ROR Present Value NPV Year Cashflow IRR Present Value NPV 0 -89000 9% -$89,000.00 $28,443.14 0 -89000 21% -$89,000.00 -$14,810.37 0 -89000 15.833% -$89,000.00 $0.78 1 18300 9% $16,788.99 1 18300 21% $15,123.97 1 18300 15.833% $15,798.61 2 18300 9% $15,402.74 2 18300 21% $12,499.15 2 18300 15.833% $13,639.12 3 18300 9% $14,130.96 3 18300 21% $10,329.87 3 18300 15.833% $11,774.82 4 18300 9% $12,964.18 4 18300 21% $8,537.09 4 18300 15.833% $10,165.34 5 18300 9% $11,893.74 5 18300 21% $7,055.44 5 18300 15.833% $8,775.86 6 18300 9% $10,911.69 6 18300 21% $5,830.94 6 18300 15.833% $7,576.30 7 18300 9% $10,010.73 7 18300 21% $4,818.96 7 18300 15.833% $6,540.71 8 18300 9% $9,184.15 8 18300 21% $3,982.61 8 18300 15.833% $5,646.67 9 18300 9% $8,425.83 9 18300 21% $3,291.42 9 18300 15.833% $4,874.84 10 18300 9% $7,730.12 10 18300 21% $2,720.18 10 18300 15.833% $4,208.51

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