For the given cash flows, suppose the firm uses the NPV decision rule. Year Cash

Question

For the given cash flows, suppose the firm uses the NPV decision rule. Year Cash Flow 0 –$ 164,000 1 52,000 2 87,000 3 71,000 Requirement 1: At a required return of 8 percent, what is the NPV of the project? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) NPV $ 15098.87 Requirement 2: At a required return of 18 percent, what is the NPV of the project? (Do not round intermediate calculations. A negative amount should be indicated by a minus sign. Round your answer to 2 decimal places (e.g., 32.16).)

Explanation / Answer

NPV = PV of Cash inflow - PV of Cash out flow

Requirement 1

NPV = $179,085 - $164,000 = $15,085

Requirement 2

NPV = $149,749 - $164,000 = -$14,251

Year Cash flow Pv factor @ 8% PV @8% PV factor @ 18% PV @18% 0 –$ 164,000 1 $52,000 0.926 $48,152 0.847 $44,044 2 $87,000 0.857 $74,559 0.718 $62,466 3 $71,000 0.794 $56,374 0.609 $43,239 $179,085 $149,749

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