Net present value. Quark Industries has a project with the following projected c
ID: 2782134 • Letter: N
Question
Net present value. Quark Industries has a project with the following projected cash flows: Initial cost: $240,000 Cash flow year one: $25,000 Cash flow year two: $75,000 Cash flow year three: $150,000 Cash flow year four: $150,000 a Using a discount rate of 10% for this project and the NPV model, determine whether the company should accept or reject this project. b. Should the company accept or reject it using a discount rate of 15%? C. Should the company accept or reject it using a discount rate of 20%? a. Using a discount rate of 10%, this project should be b. Using a discount rate of 15%, this project should be | c. Using a discount rate of 20%, this project should be 1 | |. (Select from the drop-down menu.) (Select from the drop-down menu.) (Select from the drop-down menu.)Explanation / Answer
Given initial cost of the project =$240000
a. When the discount rate is 10%
The discounted income of the project as follows
Year Cash Flows(a) Discount rate @10%(b) Present Value of CAsh Flows(a*b)
1 $25000 0.9091 $22727.5
2 $75000 0.8264 $61980
3 $150000 0.7513 $112695
4 $150000 0.683 $102450
Total $299852.5
Net present value =Total discounted cash inflows-Initial Cash outflow=$299662.5-$240000
=$59852.5
Since the NPV of the project is positive the project should be accepted
b.When the discount rate is 15%
The discounted income of the project as follows
Year Cash Flows(a) Discount rate @15%(b) Present Value of CAsh Flows(a*b)
1 $25000 0.8696 $21740
2 $75000 0.7561 $56707.5
3 $150000 0.6575 $98625
4 $150000 0.5718 $85770
Total $262842.5
Net present value =Total discounted cash inflows-Initial Cash outflow=$262842.5-$240000
=$22842.5
Since the NPV of the project is positive the project should be accepted
c.When the discount rate is 20%
The discounted income of the project as follows
Year Cash Flows(a) Discount rate @20%(b) Present Value of CAsh Flows(a*b)
1 $25000 0.8333 $20832.5
2 $75000 0.6944 $52080
3 $150000 0.5787 $86805
4 $150000 0.4823 $72345
Total $232062.5
Net present value =Total discounted cash inflows-Initial Cash outflow=$232062.5-$240000
= -$7937.5
Since the NPV of the project is negative the project should be rejected