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(NPV Calculation)

Calculate the NPV given the following free cash flows if the appropriate required rate of return is 11 percent. Should the project be accepted?

**Year** | **Cash Flows**
---|---
0 | -70,000
1 | 10,000
2 | 10,000
3 | 20,000
4 | 20,000
5 | 15,000
6 | 15,000

A. What is the project's NPV? (Round to the nearest cent)

B. Should the project be accepted? (Select the best choice below.)

- No, the project should be rejected because its NPV is -$13,135.94
- Yes, the project should be accepted because its NPV is $8,154.94
- No, the project should be rejected because its NPV is -$8,154.94
- Yes, the project should be accepted because its NPV is -$13,135.94

Answer :

Final answer:

Yes, the project should be accepted because its NPV is $8,154.94.

Explanation:

To calculate the NPV of the project, we need to discount the cash flows using the required rate of return of 11 percent. The formula to calculate NPV is:

NPV = CF0 + CF1/(1+r) + CF2/(1+r)2 + ... + CFn/(1+r)n

Where CF0, CF1, CF2, ..., CFn are the cash flows for each period, and r is the required rate of return.

Using the given cash flows:

  • CF0 = -$70,000
  • CF1 = $10,000
  • CF2 = $10,000
  • CF3 = $20,000
  • CF4 = $20,000
  • CF5 = $15,000
  • CF6 = $15,000

And the required rate of return (r) = 11%

Substituting these values into the formula, we can calculate the NPV:

NPV = -$70,000 + $10,000/(1+0.11) + $10,000/(1+0.11)2 + $20,000/(1+0.11)3 + $20,000/(1+0.11)4 + $15,000/(1+0.11)5 + $15,000/(1+0.11)6

Calculating the above expression, we find that the NPV of the project is approximately $8,154.94.

Therefore, the correct answer is:

Yes, the project should be accepted because its NPV is $8,154.94.

Learn more about calculating npv and determining project acceptance here:

https://brainly.com/question/33284820

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