Question

Corporation ABC invested in a project that will generate $60,000 annual after-tax cash flow in years 0 and 1 and $40,000 annual after-tax cash flow in years 2, 3, and 4. Compute the NPV of these cash flows assuming that:

a. ABC uses a 10 percent discount rate.
b. ABC uses a 7 percent discount rate.
c. ABC uses a 4 percent discount rate.

Answer 1

The student's question involves computing the NPV of cash flows for a Corporation ABC's project at different discount rates. Unfortunately, the provided reference material does not correspond to the student's question, and individual NPV calculations are necessary to answer it correctly.

Step-by-step explanation:

Net Present Value Calculation

To compute the net present value (NPV) of the cash flows for Corporation ABC using different discount rates, we apply the NPV formula. The formula for NPV is NPV = (Cash Flow / (1 + r)^t), where Cash Flow is the after-tax cash flow in a given year, r is the discount rate, and t is the time period in years.

For Corporation ABC's cash flows, the NPV calculation would require discounting the cash flows of $60,000 for years 0 and 1, and $40,000 for years 2, 3, and 4 at the given rates: 10%, 7%, and 4%.

The information provided in the reference is not directly applicable to this scenario, as the figures and context differ. To produce accurate NPV results for the student's question, we should perform individual calculations for each discount rate specified.

Unfortunately, the reference material provided does not align correctly with the question asked, and calculations based on the provided figures ($102 million and $183 million) cannot be used to answer this student's question about Corporation ABC's investment.

Answer 2

a. $204,940

b.$214,180

c. $224,480

Step-by-step explanation:

a. Computation for the NPV of these cash flows assuming that ABC uses a 10 percent discount rate.

NPV= $60,000 + 0.909($60,000) + 0.826($40,000) + 0.751($40,000) + 0.683($40,000)

NPV=$60,000+$54,540+$33,040+$30,040+$27,320

NPV = $204,940

Therefore the NPV of these cash flows assuming that ABC uses a 10 percent discount rate is $204,940

b. Computation for the NPV of these cash flows assuming that ABC uses a 7 percent discount rate.

NPV=$60,000 + 0.935($60,000) + 0.873($40,000) + 0.816($40,000) + 0.763($40,000)

NPV=$60,000+$56,100+$34,920+$32,640+$30,520

NPV= $214,180

Therefore the NPV of these cash flows assuming that ABC uses a 7 percent discount rate is $214,180

c. Computation for the NPV of these cash flows

assuming that ABC uses a 4 percent discount rate.

NPV=$60,000 + 0.962($60,000) + 0.925($40,000) + 0.889($40,000) + 0.855($40,000)

NPV=$60,000+$57,720+$37,000+$35,560+$34,200

NPV= $224,480

Therefore the NPV of these cash flows

assuming that ABC uses a 4 percent discount rate is $224,480