Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 8 percent, and that the maximum allowable payback and discounted payback statistics for the project are 2.0 and 3.0 years, respectively. Time:0123456Cash flow:−$7,500$1,180$2,380$1,580$1,580$1,380$1,180 Use the NPV decision rule to evaluate this project. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your final answer to 2 decimal places.)NPV: ?Should it be accepted or rejected?multiple choiceacceptedrejected

NPV = Present Value of Cash inflow - Present Value of cash outflow 1 Year 0 1 2 3 4 5 6 Cash flow -7500 1180 2380 1580 1580 1380 1180 DCF @ 8% 1 0.925925926 0.857339 0.793832 0.73503 0.680583 0.63017 Present value -7500 1092.592593 2040.466 1254.255 1161.347 939.2045 743.6002 NPV -268.534272 Payback period Year Cash flow Cumulative cash flow 1 1180 1180 2 2380 3560 3 1580 5140 4 1580 6720 5 1380 8100 6 1180 9280 payback period = 4 + ( 1 /1380 * 780) 4.57 Project is rejected since NPV is negative and Payback period is over the limit

Answered: Suppose your firm is considering…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 8 percent, and that the maximum allowable payback and discounted payback statistics for the project are 2.0 and 3.0 years, respectively.


Time:	0	1	2	3	4	5	6
Cash flow:	−$7,500	$1,180	$2,380	$1,580	$1,580	$1,380	$1,180

Use the NPV decision rule to evaluate this project. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your final answer to 2 decimal places.)

NPV: ?

Should it be accepted or rejected?

multiple choice

accepted
rejected

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