Question

Fox Co. has identified an investment project with the following cash flows. Year Cash Flow 1 $ 970 2 760 3 1,430 4 1,790 a. If the discount rate is 9 percent, what is the present value of these cash flows? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the present value at 17 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. What is the present value at 23 percent?

Answer 1

Answer:

Ans.

a) NPV =  $3,901.89  if the discount rate was 9%

b) NPV =   $3,232.33    if the discount rate was 17%

c) NPV =    $2,841.47      if the discount rate was 23%

Explanation:

Hi, we need to use the following equation in order to find the NPV for all the questions, the only thing that is changing is the discount rate, the equation is:

$NPV=\frac{CashFlow1}{(1+r)^{1} } +\frac{CashFlow2}{(1+r)^{2} }+\frac{CashFlow3}{(1+r)^{3} }+\frac{CashFlow4}{(1+r)^{4} }$

Now, let´s start solving.

a) when r = 0.09 (or 9%)

$NPV=\frac{970}{(1+0.09)^{1} } +\frac{760}{(1+0.09)^{2} }+\frac{1,430}{(1+0.09)^{3} }+\frac{1,790}{(1+0.09)^{4} }= 3,901.89$

b) when r = 0.17 (or 17%)

$NPV=\frac{970}{(1+0.17)^{1} } +\frac{760}{(1+0.17)^{2} }+\frac{1,430}{(1+0.17)^{3} }+\frac{1,790}{(1+0.17)^{4} }=  3,232.33$

c) When r = 0.23 (or 23%)

$NPV=\frac{970}{(1+0.23)^{1} } +\frac{760}{(1+0.23)^{2} }+\frac{1,430}{(1+0.23)^{3} }+\frac{1,790}{(1+0.23)^{4} }=   2,841.47$

Best of luck.