For the following set of cash flows Year Cash Flow 0 6900 1

For the following set of cash flows, Year Cash Flow 0 –$6,900 1 4,400 2 3,000 3 3,200 Required: (a) What is the NPV at a discount rate of 0 percent? (b) What is the NPV at a discount rate of 9 percent? (c) What is the NPV at a discount rate of 24 percent? (d) What is the NPV at a discount rate of 29 percent?

Solution

NPV= Cash Outflow at Time 0- Present value of all the inflows

-6900+ 4400/(1+r)+3000/(1+r)^2+3200/(1+r)^3

When r =0%

NPV= -6900+ 4400/(1)+3000/(1)^2+3200/(1)^3= $3700

When r= 9%

NPV=-6900+ 4400/(1.09)+3000/(1.09)^2+3200/(1.09)^3= $2,132.72

When r= 24%

NPV=-6900+ 4400/(1.24)+3000/(1.24)^2+3200/(1.24)^3= $277.84

When r= 29%

NPV=-6900+ 4400/(1.29)+3000/(1.29)^2+3200/(1.29)^3= -$195.70