Compute the NPV for Project M if the appropriate cost of capital is 7 percent. (Negative amount should be Indicated by a minus Do not round Intermediate calculations and round your final answer to 2 decimal places.) Project M Time: Cash flow: NPV 0 1 2 3 -$3,200 $670 $800 $840 Should the project be accepted or rejected? Ⓒ rejected O accepted 4 $920 5 $420

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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### Net Present Value (NPV) Calculation for Project M

**Objective:**
Compute the NPV for Project M with an appropriate cost of capital of 7%. Remember not to round intermediate calculations, and round the final answer to two decimal places. Negative amounts should be indicated with a minus sign.

**Project M Cash Flow Table:**

| Time      | 0      | 1     | 2    | 3    | 4    | 5    |
|-----------|--------|-------|------|------|------|------|
| Cash Flow | -$3200 | $670  | $800 | $840 | $920 | $420 |

**Instructions:**
1. Calculate the NPV using the given cash flows and discount them at a 7% cost of capital.
2. Input the computed NPV into the provided field.
3. Determine whether the project should be accepted or rejected based on the NPV result.

**Options:**
- ⊙ Rejected
- ⊙ Accepted

**Graph/Diagram Explanation:**
The table above lists the cash flows for Project M over a period of 5 years. The initial investment at Time 0 is negative, indicating an outflow, while subsequent years show positive cash flows. The NPV calculation will help determine if the project provides value considering the cost of capital. 

#### Decision Criterion
- **Accept the Project**: If NPV > 0
- **Reject the Project**: If NPV < 0

Use this information to assess the viability of Project M.
Transcribed Image Text:### Net Present Value (NPV) Calculation for Project M **Objective:** Compute the NPV for Project M with an appropriate cost of capital of 7%. Remember not to round intermediate calculations, and round the final answer to two decimal places. Negative amounts should be indicated with a minus sign. **Project M Cash Flow Table:** | Time | 0 | 1 | 2 | 3 | 4 | 5 | |-----------|--------|-------|------|------|------|------| | Cash Flow | -$3200 | $670 | $800 | $840 | $920 | $420 | **Instructions:** 1. Calculate the NPV using the given cash flows and discount them at a 7% cost of capital. 2. Input the computed NPV into the provided field. 3. Determine whether the project should be accepted or rejected based on the NPV result. **Options:** - ⊙ Rejected - ⊙ Accepted **Graph/Diagram Explanation:** The table above lists the cash flows for Project M over a period of 5 years. The initial investment at Time 0 is negative, indicating an outflow, while subsequent years show positive cash flows. The NPV calculation will help determine if the project provides value considering the cost of capital. #### Decision Criterion - **Accept the Project**: If NPV > 0 - **Reject the Project**: If NPV < 0 Use this information to assess the viability of Project M.
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