10. NPV and IRR. A project that costs $3,000 to install will provide annual cash flows of $800 for each of the next 6 years. (LO8-1 and LO8-2) What is NPV if the discount rate is 10%? How high can the discount rate be before you would reject the project? Please answer with correct calculations
10. NPV and IRR. A project that costs $3,000 to install will provide annual cash flows of $800 for each of the next 6 years. (LO8-1 and LO8-2)
- What is NPV if the discount rate is 10%?
- How high can the discount rate be before you would reject the project?
Please answer with correct calculations
project cost = 3000
annual cash inflows = 800
discount rate = 10%
1) net present value is the present value of cash inflows minus the present value of cash outflows
net present value of cashflows = 3000/(1+0.10)0-[ 800/(1+0.10)1+ 800/(1+0.10)2+ 800/(1+0.10)3+ 800/(1+0.10)4+ 800/(1+0.10)5+ 800/(1+0.10)6]
= 3000 - [727.2727+661.1570 +601.0518+546.4107+496.7370+451.5791]
= 3000 -[3484.2083]
= [3484.2083] - 3000
= 484.2083
NPV = 484.21 (approx)
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