Corporate Finance Q48
| Year 0 | -£900,000.00 |
| Year 1 | £6,344,400.00 |
| Year 2 | - £8,520,364.00 |
| Year 3 | £2,245,066.00 |
| Year 4 | £650,000.00 |
At which of the following discount rates is the project least likely to be
undertaken?
undertaken?
- Option : C
- Explanation : The question requires that NPV be found at each of the discount rates given as answer choices. When the NPV of cash flows is negative, the project is least likely to be undertaken. Using a financial calculator, first enter the cash flows. CF0 = - 900,000, CF1 = 6,344,400, CF2 = -8,520,364, CF3 = 2,245,066, CF4 = 650,000 Then, determine the NPV for each of the given discount rates When I = 13%, CPT NPV = -3,581 When I = 16%, CPT NPV = +34,600 When I = 18%, CPT NPV = +59,097 Hence, project will least likely be undertaken when the discount rate is 13% as the NPV is negative, while at the other two discount rates it is positive.
