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Consider a project with the following cash flows: CF0 = -$3333 (at t=0), CF1 = 1918.14 (at t=1), and CF2 = 2207.78 (at t=2). If the required rate of return is 15.1% and the internal rate of return is 15.1%, what is the NPV of this project?[Answer: Number with 0 decimals. Do not include '$' or the thousands separator.]

Question

Consider a project with the following cash flows: CF0 = -3333(att=0),CF1=1918.14(att=1),andCF2=2207.78(att=2).Iftherequiredrateofreturnis15.13333 (at t=0), CF1 = 1918.14 (at t=1), and CF2 = 2207.78 (at t=2). If the required rate of return is 15.1% and the internal rate of return is 15.1%, what is the NPV of this project?[Answer: Number with 0 decimals. Do not include '' or the thousands separator.]

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Solution

The Net Present Value (NPV) of a project is calculated by summing the present values of its cash flows. The present value of a cash flow is calculated by dividing the cash flow by (1 + r)^t, where r is the required rate of return and t is the time period.

Here are the steps to calculate the NPV:

  1. Calculate the present value of CF0: Since CF0 is at t=0, its present value is simply CF0 itself, which is -$3333.

  2. Calculate the present value of CF1: CF1 is 1918.14 and it is at t=1. So, its present value is 1918.14 / (1 + 15.1/100)^1 = 1666.67.

  3. Calculate the present value of CF2: CF2 is 2207.78 and it is at t=2. So, its present value is 2207.78 / (1 + 15.1/100)^2 = 1666.67.

  4. Sum the present values of the cash flows to get the NPV: NPV = -$3333 + 1666.67 + 1666.67 = 0.

So, the NPV of this project is 0.

This problem has been solved

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