Question

Dennis wants to determine if the discount rate really makes any difference in the net present value of a project. He feels that if a project is acceptable at one rate of return, it will be acceptable at all rates of return. To explain why his thinking is incorrect, you are creating an example to illustrate your point. The cash flows you are using are as follows: time zero is -$71,000, years 1 through 4 are $17,500 each, and years 5 and 6 are $22,500 each. What is net present value at a discount rate of 12 percent and 17 percent

Answer 1

$6319,92

$-3959.52

Step-by-step explanation:

Net present value is the present value of after-tax cash flows from an investment less the amount invested.

NPV can be calculated using a financial calculator

Cash flow in year 0 = -$71,000

Cash flow in year 1 = $17,500

Cash flow in year 2 = $17,500

Cash flow in year 3 = $17,500

Cash flow in year 4 = $17,500

Cash flow in year 5 = $22,500

Cash flow in year 6 = $22,500

NPV when I is 12% = $6319,92

NPV when I is 17% = $-3959.52

To find the NPV using a financial calculator:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. after inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.

3. Press compute