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Compute the NPV for Project M if the appropriate cost of capital is 9 percent
Compute the NPV for Project M if the appropriate cost of capital is 9 percent. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your final answer to 2 decimal places.) Project M Time: Cash flow: 0 1 -$1,200 $390 2 $520 3 $560 4 $640 5 $140 NPV Should the project be accepted or rejected? accepted O rejected
Expert Solution
Cost of capital = 9%
We will first calculate the Present Value of each cashflow using the cost of capital and sum them to calculate the NPV of the project.
PV of a cashflow = Cashflow / (1 + Cost of capital)T
Below is the calculation for each cashflow of the project:
| Year | Project M Cashflows | Calculation of PV | PV of Project M's Cashflows |
| 0 | -1,200 | -1,200 / (1 + 9%)0 | -1,200.00 |
| 1 | 390 | 390 / (1 + 9%)1 | 357.80 |
| 2 | 520 | 520 / (1 + 9%)2 | 437.67 |
| 3 | 560 | 560 / (1 + 9%)3 | 432.42 |
| 4 | 640 | 640 / (1 + 9%)4 | 453.39 |
| 5 | 140 | 140 / (1 + 9%)5 | 90.99 |
NPV = Sum of all Present Value of Cashflows
NPV of the project = -1,200 + 357.80 + 437.67 + 432.42 + 453.39 + 90.99
Hence, NPV of the Project = $572.28
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