Homework SourseA firm evaluates all of its projects by using the NPV decisi
| A firm evaluates all of its projects by using the NPV decision rule. |
Solution
Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)
a.Present value of inflows=20000/1.21+15000/1.21^2+8000/1.21^3
=$31289.92
NPV=Present value of inflows-Present value of outflows
=$31289.92-$28000
=$3289.92(Approx).
b.Present value of inflows=20000/1.39+15000/1.39^2+8000/1.39^3
=$25130.89
NPV=Present value of inflows-Present value of outflows
=$25130.89-$28000
=$(2869.11)(Approx).(Negative).
