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3 years ago

Net Present Value Analysis [LO12-2]

Business

1 answer:

zheka24 [161]3 years ago

3 0

Answer:

NPV = $-1,225.37

No. The return is less than 14%, because the net present value is negative

Explanation:

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

Only projects with a positive NPV should be accepted. A project with a negative NPV should not be chosen because it isn't profitable.

NPV can be calculated using a financial calculator

Cash flow in year 0 = $-13,000

Cash flow in year 1 and 2 = 420

Cash flow in year 3 = $420 + $16,000 = $16,420.

I = 14%

NPV = $-1,225.37

The return is less than 14%, because the net present value is negative

To find the NPV using a financial calculator:

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

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