Question

If a company has a required rate of return of 15%, should the following project be accepted based on these expected cash flows below?Year 0 1 2 3 4 5 6 Cash Flow (274,000) 68,000 73,000 76,500 78,000 82,500 77,000 Please explain why or why not the company should move forward with this endeavor.

Answer 1

Answer:

Yes

Explanation:

In order for deciding whether the company should forward or not, we have to find out the net present value which is shown below:

Year              Cash flows             Discount factor       Present value  

0                        -274000                      1                        -274000

1                           68000                    0.8696                   59130.43

2                          73000                    0.7561                    55198.49

3                           76500                    0.6575                   50299.99

4                          78000                      0.5718                   44596.75

5                          82500                     0.4972                   41017.08

6                           77000                     0.4323                    33289.22

Total present value                                                           283531.97

Net present value                                                                9531.97

Since the net present value comes in positive so the project should be accpeted