The required rate of return used for the npv calculation


Each of the following parts is independent. Assume all cash flows are after-tax cash flows.

1. Modinero Bank is considering the purchase of a new automated teller system. The cash benefits will be $240,000 per year. The system costs $1,360,000 and will last 10 years. Compute the NPV assuming a discount rate of 12 percent. Should the bank buy the new automated teller system?

2. Brandon Smith is interested in investing in some tools and equipment so that he can do independent remodeling. The cost of the tools and equipment is $30,000. He estimates that the return from owning his own equipment will be $9,000 per year. The tools and equipment will last six years. Assuming a required rate of return of 8 percent, calculate the NPV of the investment. Should he invest?

3. Golman Company calculated the NPV of a project and found it to be $3,550. The project's life was estimated to be six years. The required rate of return used for the NPV calculation was 10 percent. The project was expected to produce annual after-tax cash flows of $10,000. What was the required investment for the project?

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Financial Accounting: The required rate of return used for the npv calculation
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