Question
Star City is considering an investment in the community center that is expected to return the following cash flows: Use Present Value of $1 Table
Star City is considering an investment in the community center that is expected to return the following cash flows: Use Present Value of $1 Table
Year | Net Cash Flow | ||
1 | $ | 25,000 | |
2 | 55,000 | ||
3 | 85,000 | ||
4 | 85,000 | ||
5 | 105,000 | ||
This schedule includes all cash inflows from the project, which will also require an immediate $205,000 cash outlay. The city is tax-exempt; therefore, taxes need not be considered.
Required:
a. What is the net present value of the project if the appropriate discount rate is 25 percent? (Round PV factor to 3 decimal places. Negative amount should be indicated by a minus sign.)
b. What is the net present value of the project if the appropriate discount rate is 15 percent? (Round PV factor to 3 decimal places. Negative amount should be indicated by a minus sign.)
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