Answer:
a. $204,940
b.$214,180
c. $224,480
Explanation:
a. Computation for the NPV of these cash flows assuming that ABC uses a 10 percent discount rate.
NPV= $60,000 + 0.909($60,000) + 0.826($40,000) + 0.751($40,000) + 0.683($40,000)
NPV=$60,000+$54,540+$33,040+$30,040+$27,320
NPV = $204,940
Therefore the NPV of these cash flows assuming that ABC uses a 10 percent discount rate is $204,940
b. Computation for the NPV of these cash flows assuming that ABC uses a 7 percent discount rate.
NPV=$60,000 + 0.935($60,000) + 0.873($40,000) + 0.816($40,000) + 0.763($40,000)
NPV=$60,000+$56,100+$34,920+$32,640+$30,520
NPV= $214,180
Therefore the NPV of these cash flows assuming that ABC uses a 7 percent discount rate is $214,180
c. Computation for the NPV of these cash flows
assuming that ABC uses a 4 percent discount rate.
NPV=$60,000 + 0.962($60,000) + 0.925($40,000) + 0.889($40,000) + 0.855($40,000)
NPV=$60,000+$57,720+$37,000+$35,560+$34,200
NPV= $224,480
Therefore the NPV of these cash flows
assuming that ABC uses a 4 percent discount rate is $224,480
