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?(NPV with varying required rates of return?) Gubanich Sportswear is considering building a new factory to...

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?(NPV with varying required rates of return?) GubanichSportswear is considering building a new factory to producealuminum baseball bats. This project would require an initial cashoutlay of ?$4,000,000 and would generate annual free cash inflowsof ?$1,200,000 per year for 8 years. Calculate the? project's NPV?given: a. A required rate of return of 8 percent b. A requiredrate of return of 11 percent c. A required rate of return of 15percent d. A required rate of return of 17 percent

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4.2 Ratings (573 Votes)

a.Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate

=1,200,000[1-(1.08)^-8]/0.08

=1,200,000*5.746638944

=$6,895,966.73

NPV=Present value of inflows-Present value of outflows

=$6,895,966.73-$4,000,000

=$2,895,966.73(Approx).

b.Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate

=1,200,000[1-(1.11)^-8]/0.11

=1,200,000*5.146122761

=$6,175,347.31

NPV=Present value of inflows-Present value of outflows

=$6,175,347.31-$4,000,000

=$2,175,347.31(Approx).

c.Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate

=1,200,000[1-(1.15)^-8]/0.15

=1,200,000*4.487321508

=$5,384,785.81

NPV=Present value of inflows-Present value of outflows

=$5,384,785.81-$4,000,000

=$1,384,785.81(Approx).

d.Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate

=1,200,000[1-(1.17)^-8]/0.17

=1,200,000*4.207162506

=$5,048,595.01

NPV=Present value of inflows-Present value of outflows

=$5,048,595.01-$4,000,000

=$1,048,595.01(Approx).
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?(NPV with varying required rates of return?) GubanichSportswear is considering building a new factory to producealuminum baseball bats. This project would require an initial cashoutlay of ?$4,000,000 and would generate annual free cash inflowsof ?$1,200,000 per year for 8 years. Calculate the? project's NPV?given: a. A required rate of return of 8 percent b. A requiredrate of return of 11 percent c. A required rate of return of 15percent d. A required rate of return of 17 percent

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