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. Year Cash Flow 0 –$27,000 1 24,000 2 16,000 3 9,000 Required: (a) At a required return of 24 percent, what is the NPV for this project? (b) At a required return of 37 percent, what is the NPV for this project?
Solution
(a) NPV at a required return of 24%
Net Present Value (NPV) = PV of inflows - PV of Outflows
= (19354.84+10405.83+4720.39) - 27000
= 7481.05
(b) NPV at a required return of 37%
Net Present Value (NPV) = PV of inflows - PV of Outflows
= (17518.25+8524.69+3500.10) - 27000
= 2543.05
use the equation 1/(1+i)^n to find PVF
| Year | Cashflow | PVF@24% | Cashflow*PVF |
| 0 | (27,000) | 1 | (27,000.00) |
| 1 | 24,000 | 0.806 | 19,354.84 |
| 2 | 16,000 | 0.650 | 10,405.83 |
| 3 | 9,000 | 0.524 | 4720.39 |
