For the given cash flows, suppose the firm uses the NPV decision rule. Year Cash
ID: 2793473 • Letter: F
Question
For the given cash flows, suppose the firm uses the NPV decision rule. Year Cash Flow 0 –$ 146,000 1 70,000 2 69,000 3 53,000 -------------------------------------------------------------------------------- Requirement 1: At a required return of 11 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 $ Requirement 2: At a required return of 22 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).) NPV $
Explanation / Answer
1. First calculate NPV for given cash flow at Required rate of return as 11%
Present value of outflow is $146000
Present value of Cash inFlow 1= (70000)/1.11=63063.06
Present value of Cash inFlow 2= (69000)/1.11^2=56001.94
Present value of Cash inFlow 3 =(53000)/1.11^3=38753.14
Total present value of Cash inFlow =157818.14
NPV = Present Value of Cash inflow - Present Value of Cash outflow
= 157818.14-146000
= $ 11818.14
2. Now we calculate Project NPV for required rate of return as 22%
Present value of Cash outflow = $146000
Present value of Cash inflow 1 = (70000)/1.22=57377.049
Present value of Cash inflow 2 = (69000)/1.22^2=46358.505
Present value of Cash inflow 3 = (53000)/1.22^3=29187.465
Total present value of Cash inflows = 132923.019
NPV = Present value of Cash inflows - present value of Cash Outflow
= 132923.019-146000
= -13076.98 $