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

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%

Step-by-step 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=(CashFlow1)/((1+r)^(1) ) +(CashFlow2)/((1+r)^(2) )+(CashFlow3)/((1+r)^(3) )+(CashFlow4)/((1+r)^(4) )`

Now, let´s start solving.

a) when r = 0.09 (or 9%)

`NPV=(970)/((1+0.09)^(1) ) +(760)/((1+0.09)^(2) )+(1,430)/((1+0.09)^(3) )+(1,790)/((1+0.09)^(4) )= 3,901.89`

b) when r = 0.17 (or 17%)

`NPV=(970)/((1+0.17)^(1) ) +(760)/((1+0.17)^(2) )+(1,430)/((1+0.17)^(3) )+(1,790)/((1+0.17)^(4) )=  3,232.33`

c) When r = 0.23 (or 23%)

`NPV=(970)/((1+0.23)^(1) ) +(760)/((1+0.23)^(2) )+(1,430)/((1+0.23)^(3) )+(1,790)/((1+0.23)^(4) )=   2,841.47`

Best of luck.