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

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Finance

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-1,040140460660660260

660


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

Answer & Explanation Solved by verified expert
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?

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