A
firm evaluates all of its projects by applying the NPV decision rule. A
project under consideration has the following cash flows:
Year  Cash Flow  
0  –$  27,400  
1  11,400  
2  14,400  
3  10,400  
What is the NPV for the project if the required return is 12 percent? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

NPV  $ 
At a required return of 12 percent, should the firm accept this project? 
Yes 
What is the NPV for the project if the required return is 24 percent? (Negative
amount should be indicated by a minus sign. Do not round intermediate
calculations and round your final answer to 2 decimal places. (e.g.,
32.16))

NPV  $ 
At a required return of 24 percent, should the firm accept this project? 
No 
Explanation:
The
NPV of a project is the PV of the inflows minus the PV of the outflows.
The equation for the NPV of this project at a 12 percent required
return is:

NPV = –$27,400 + $11,400 / 1.12 + $14,400 / 1.12^{2} + $10,400 / 1.12^{3} = $1,660.68 
At a 12 percent required return, the NPV is positive, so we would accept the project. 
The equation for the NPV of the project at a 24 percent required return is: 
NPV = –$27,400 + $11,400 / 1.24 + $14,400 / 1.24^{2} + $10,400 / 1.24^{3} = –$3,386.54 
At a 24 percent required return, the NPV is negative, so we would reject the project. 
Calculator Solution: 
Note: Intermediate answers are shown below as rounded, but the full answer was used to complete the calculation. 
CFo
 –$27,400 
CFo
 –$27,400  
C01
 $11,400 
C01
 $11,400  
F01
 1 
F01
 1  
C02
 $14,400 
C02
 $14,400  
F02
 1 
F02
 1  
C03
 $10,400 
C03
 $10,400  
F03
 1 
F03
 1  
I = 12%  I = 24%  
NPV CPT  NPV CPT  
$1,660.68  –$3,386.54 