Suppose that a project generates the cash flows at the bottom, where payments are negative cash flows and revenues are positive cash flows.

1. Assuming the cost of capital is 7.5% and using the net present value method, find the value of the project and give a recommendation on whether the project should be undertaken.
2. Does your recommendation change if the costs of capital rises to 20%? Explain, and what is your recommendation?
3. Now suppose that after the 12th period the project continues on forever, with a constant flow of net cash flows equal to the twelveth period. That is the net cash in the twelveth period is repeated in the 13th period, and the 14th, and so on. Now include this feature into your valuation of the project.Calculate the NPV. Does your recommendation change?Explain.
4. Similar to the previous problem, suppose that the 12th period net flow continues on into the future, but instead of continuing forever, it only continues for 12 more years.Evaluate the NPV of this project, make a recommendation, and explain.
5. Assets are used to generate revenues and may incur some costs.Explain how the NPV method could be used to value assets, like a house for example.

Period Payments Revenues

0 -14 0

1 -6321 3896

2 -2600 4235

3 -6985 6013

4 -6032 1528

5 -4037 704

6 -672 10654

7 -5305 8865

8 -9345 1296

9 -5858 3817

10 -2612 5408

11 -3402 11803

12 -8522 10778