Final answer:
The NPV of a project at a 10% discount rate is calculated using the present value of future cash flows, subtracting the project's initial cost. To determine the maximum acceptable discount rate before rejection, calculate NPV at various rates until it turns negative.
Step-by-step explanation:
The question involves calculating the net present value (NPV) of a project with an initial cost and annual cash flows, while considering a discount rate. To calculate the NPV, we need to find the present value of each future cash flow by discounting it back to the present using the given discount rate. We then subtract the initial project cost from the sum of these present values.
The NPV for the project with a 10% discount rate is calculated by discounting each annual cash flow of $1,450 for 6 years and subtracting the initial project cost of $4,300. The NPV at a 10% discount rate is given by:
NPV = (1,450 / (1 + 0.10)1) + (1,450 / (1 + 0.10)2) + ... + (1,450 / (1 + 0.10)6) - 4,300
To find out how high the discount rate can be before rejecting the project, we can calculate the NPV at different discount rates and compare it to zero. The project would be rejected when the NPV becomes negative.