Homework SourseSuppose your firm is considering investing in a project with
Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 8 percent, and that the maximum allowable payback and discounted payback statistics for the project are 3.5 and 4.5 years, respectively.
Use the NPV decision rule to evaluate this project. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places.)
| Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 8 percent, and that the maximum allowable payback and discounted payback statistics for the project are 3.5 and 4.5 years, respectively. |
Solution
NPV= -cf0+cf1/(1+r)+Cf2/(1+r)^2+Cf3/(1+r)^3+Cf/(1+r)^4+Cf5/(1+r)^5+Cf6/(1+r)^6
= -4900+1260/1.08+2460/(1.08)^2+1660/(1.08)^3+1660/(1.08)^4+1460/(1.08)^5+1260/(1.08)^6
=$2701.01
It should be accepted as it is givng positive NPV
