Crystal Industries is considering an expansion project with cash flows of -$325,000, $167,500, $216,100, $104,500, and -$92,700 for years 0 through 4. Should the firm proceed with the expansion based on the discounting approach to the modified internal rate of return if the discount rate is 13.4 percent

Crystal Industries

NPV = $7,1005.51

The firm should proceed with the expansion because the project will yield a positive net present value.

Explanation:

a) Data and Calculations:

Discount rate = 13.4%

Discount factor  = 1/(1 + r)∧n

Calculation of the Net Present Value:

Years   Cash flows   Discount Factor  Present value  

0           -$325,000     1                          -$325,000.00      

1              $167,500    0.8818                        147,701.50

2             $216,100     0.7776                     168,039.36

3            $104,500     0.7001                        73,160.45

4            -$92,700      0.6174                     -56,800.80

NPV =                                                            $7,100.51

b) Crystal's net present value (NPV) is the difference between the present value of its cash inflows and the present value of its cash outflows over the project's 4 years.  The NPV is usually determined in capital budgeting and investment planning as a financial evaluation tool when analyzing the positivity of a project's cash flows.  It discounts the future cash flows to today's dollar values, taking into consideration the time value of money.

answer; descriptive statistics;

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