# FIN – Consider the project with the following expected cash flows

A. Consider the project with the following expected cash flows:Year Cash flow0 -\$400,0001 \$100,0002 \$120,0003 \$850,000â¢ If the discount rate is 0%, what is the project’s net present value?â¢ If the discount rate is 2%, what is the project’s net present value?â¢ If the discount rate is 6%, what is the project’s net present value?â¢ If the discount rate is 11%, what is the project’s net present value?â¢ With a cost of capital of 5%, what is this project’s modified internal rate of return?Now draw (for yourself) a chart where the discount rate is on the horizontal axis (the “x” axis) and the net present value on the vertical axis (the Y axis). Plot the net present value of the project as a function of the discount rate by dots for the four discount rates. connect the four points using a free hand ‘smooth’ curve. The curve intersects the horizontal line at a particular discount rate. What is this discount rate at which the graph intersects the horizontal axis?[ Look at the graph you draw and write a short paragraph stating what the graph ‘shows”]..b. Consider a project with the expected cash flows:Year Cash flow0 -\$815,0001 \$141,0002 \$320,0003 \$440,000â¢What is this project’s internal rate of return?â¢If the discount rate is 1%, what is this project’s net present value?â¢ If the discount rate is 4%, what is this project’s net present value?â¢ If the discount rate is 10%, what is this project’s net present value?â¢ If the discount rate is 18%, what is this project’s net present value?Now draw (for yourself) a chart where the discount rate is on the horizontal axis (the “x” axis) and the net present value on the vertical axis (the Y axis). Plot the net present value of the project as a function of the discount rate by dots for the four discount rates. connect the four points using a free hand ‘smooth’ curve. The curve intersects the horizontal line at a particular discount rate. What is this discount rate at which the graph intersects the horizontal axis?[ Observe the graph and write a short paragraph stating what the graph ‘shows]c. A project requiring a \$4.2 million investment has a profitability index of 0.94. What is its net present value? (Remember: Profitability Index is defined as Present Value of the proceeds divided by the initial investment)

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