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A project that provides annual cash flows of $2,450 for nine years costs $10,100 today. Requirement 1: At...

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Finance

A project that provides annual cash flows of $2,450 for nineyears costs $10,100 today.


Requirement 1:

At a required return of 9 percent, what is the NPV of theproject? (Do not round intermediate calculations. Roundyour answer to 2 decimal places (e.g.,32.16).)


  NPV  $   


Requirement 2:

At a required return of 25 percent, what is the NPV of theproject? Use the IRR function. (Do not round intermediatecalculations. A negative amount should be indicated by a minussign. Round your answer to 2 decimal places (e.g.,32.16).)


  NPV  $   


Requirement 3:

At what discount rate would you be indifferent between acceptingthe project and rejecting it? (Do not round intermediatecalculations. Enter your answer as a percentage rounded to 2decimal places (e.g., 32.16).)


  Discount rate%

Answer & Explanation Solved by verified expert
4.5 Ratings (990 Votes)

1

Discount rate 9.000%
Year 0 1 2 3 4 5 6 7 8 9
Cash flow stream -10100 2450 2450 2450 2450 2450 2450 2450 2450 2450
Discounting factor 1.000 1.090 1.188 1.295 1.412 1.539 1.677 1.828 1.993 2.172
Discounted cash flows project -10100.000 2247.706 2062.116 1891.850 1735.642 1592.332 1460.855 1340.234 1229.572 1128.048
NPV = Sum of discounted cash flows
NPV Project = 4588.35
Where
Discounting factor = (1 + discount rate)^(Corresponding period in years)
Discounted Cashflow= Cash flow stream/discounting factor

2

Discount rate 25.000%
Year 0 1 2 3 4 5 6 7 8 9
Cash flow stream -10100 2450 2450 2450 2450 2450 2450 2450 2450 2450
Discounting factor 1.000 1.250 1.563 1.953 2.441 3.052 3.815 4.768 5.960 7.451
Discounted cash flows project -10100.000 1960.000 1568.000 1254.400 1003.520 802.816 642.253 513.802 411.042 328.833
NPV = Sum of discounted cash flows
NPV Project = -1615.33
Where
Discounting factor = (1 + discount rate)^(Corresponding period in years)
Discounted Cashflow= Cash flow stream/discounting factor

3

Project
IRR is the rate at which NPV =0
IRR 19.30%
Year 0 1 2 3 4 5 6 7 8 9
Cash flow stream -10100.000 2450.000 2450.000 2450.000 2450.000 2450.000 2450.000 2450.000 2450.000 2450.000
Discounting factor 1.000 1.193 1.423 1.698 2.026 2.417 2.883 3.440 4.104 4.896
Discounted cash flows project -10100.000 2053.591 1721.321 1442.812 1209.366 1013.691 849.676 712.199 596.966 500.377
NPV = Sum of discounted cash flows
NPV Project = 0.000
Where
Discounting factor = (1 + discount rate)^(Corresponding period in years)
Discounted Cashflow= Cash flow stream/discounting factor
IRR= 19.30% = indifference rate

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Transcribed Image Text

A project that provides annual cash flows of $2,450 for nineyears costs $10,100 today.Requirement 1:At a required return of 9 percent, what is the NPV of theproject? (Do not round intermediate calculations. Roundyour answer to 2 decimal places (e.g.,32.16).)  NPV  $   Requirement 2:At a required return of 25 percent, what is the NPV of theproject? Use the IRR function. (Do not round intermediatecalculations. A negative amount should be indicated by a minussign. Round your answer to 2 decimal places (e.g.,32.16).)  NPV  $   Requirement 3:At what discount rate would you be indifferent between acceptingthe project and rejecting it? (Do not round intermediatecalculations. Enter your answer as a percentage rounded to 2decimal places (e.g., 32.16).)  Discount rate%

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