Suppose your firm is considering investing in a project with the cash flows shown below, that...

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Suppose your firm is considering investing in a project with thecash flows shown below, that the required rate of return onprojects of this risk class is 11 percent, and that the maximumallowable payback and discounted payback statistic for the projectare 2 and 3 years, respectively.
Time 0 1 2 3 4 5 6
Cash Flow -1,040 140 460 660 660 260
660

Use the NPV decision rule to evaluate this project; should it beaccepted or rejected?

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4.4 Ratings (573 Votes)

Ans NPV is $ 883.98, Since NPV is positive, the project should be Accepted

Year	Project Cash Flows (i)	DF@ 11%	DF@ 11% (ii)	PV of Project A ( (i) * (ii) )
0	-1040	1	1	(1,040.00)
1	140	1/((1+11%)^1)	0.901	126.13
2	460	1/((1+11%)^2)	0.812	373.35
3	660	1/((1+11%)^3)	0.731	482.59
4	660	1/((1+11%)^4)	0.659	434.76
5	260	1/((1+11%)^5)	0.593	154.30
6	660	1/((1+11%)^6)	0.535	352.86
		NPV		883.98

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Transcribed Image Text

Suppose your firm is considering investing in a project with thecash flows shown below, that the required rate of return onprojects of this risk class is 11 percent, and that the maximumallowable payback and discounted payback statistic for the projectare 2 and 3 years, respectively. Time0123456 Cash Flow-1,040140460660660260660Use the NPV decision rule to evaluate this project; should it beaccepted or rejected?