Answer:
NPV 3.461,36 at 11% discount rate, it should be accepted
NPV -2,882.4 at 25% discount rate, it should be rejected.
Explanation:
We will calculate the present value of the cash flow at each discount rate.
First we will do 11% and then 25% discount
[tex]\frac{inflow}{(1 + rate)^{time} } = PV[/tex]
Year 1 cash inflow: 12,300.00
time 1
rate 0.11
[tex]\frac{12300}{(1 + 0.11)^{1} } = PV[/tex]
PV 11,081.08
Year 1 cash inflow: 15,300.00
time 2
rate 0.11
[tex]\frac{15300}{(1 + 0.11)^{2} } = PV[/tex]
PV 12,417.82
Year 3 cash inflow: 11,300.00
time 3.00
rate 0.11
[tex]\frac{11300}{(1 + 0.11)^{3} } = PV[/tex]
PV 8,262.46
Next, we add the project three years to get the total inflow.
Total value of the cash inflow:
11,081.08 + 12,417.82 + 8,262.46 = 31,761.36
Last, the net present value
present value of the cash inflow - investment
31,761.36 - 28,300 = 3,461.36
It is postive, this means the project yields at a better rate than 11%. The project should be accepted.
Now, we repeat for the second discount rate of 25%
Year 1 cash inflow: 12,300.00
time 1
rate 0.25
[tex]\frac{12300}{(1 + 0.25)^{1} } = PV[/tex]
PV 9,840.00
Year 2 cash inflow: 15,300.00
time 2
rate 0.25
[tex]\frac{15300}{(1 + 0.25)^{2} } = PV[/tex]
PV 9,792.00
Year 3 cash inflow: 11,300.00
time 3
rate 0.25
[tex]\frac{11300}{(1 + 0.25)^{3} } = PV[/tex]
PV 5,785.60
Using a 25% discount rate, the present value of the cash inflow:
9,840.00 + 9,792.00 + 5,785.60 = 25,417.6
NPV: 25,417.6 - 28,300 = -2,882.4
