Question

Rydell Inc. is evaluating a proposed capital budgeting project that will require an initial investment of $168,000. The project is expected to generate the following net cash flows: Year Cash Flow Year 1 $44,800 Year 2 $51,700 Year 3 $48,600 Year 4 $47,900 Assume the desired rate of return on a project of this type is 10%. What is the net present value of this project? (Note: Do not round your intermediate calculations.) $21,109.30 $23,914.50 –$18,163.50 -$15,315.21 Suppose Rydell Inc. has enough capital to fund the project, and the project is not competing for funding with other projects. Should Rydell Inc. accept or reject this project? Accept the project Reject the project

Answer 1

Answer:

-$15,315.21

Reject the project

Explanation:

The net present value is the present value of after tax cash flows from an investment less the amount invested.

The NPV can be found using a financial calculator.

Cash flow in year zero = -168,000

Cash flow in year 1 = $44,800

Cash flow in Year 2 = $51,700

Cash flow in Year 3 = $48,600

Cash flow in Year 4 = $47,900 

Interest rate = 10%

NPV = $-15,315.21

To find the NPV using a financial calacutor:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. After inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.

3. Press compute

The decision rule with NPV is to accept the project if the npv is positive. Since the NPV calculated above is negative, the project should be rejected.

I hope my answer helps you