Unit 5: Lesson 2: LS Assignment 2

The basic NPV investment rule is:

-if the NPV is equal to zero, acceptance or rejection of the project is a matter of indifference -reject a project if its NPV is less than zero -accept a project if the NPV is greater than zero

Specifying variables in the Excel NPV function offers from the manner in which they are entered in a financial calculator in which of the following ways?

-with the Excel NPV function, cashflow #0 must be handled outside the NPV function -the range of cash flows specified in excel begins with cashflow #1, not cashflow 0. -the discount rate in excel is entered as a decimal, or as a percentage with a percent sign -the excel NPV function is actually a PV function

The spreadsheet function for calculating net present value is:

=NPV(rate, CF1, .., CFn) + CFO

What is the NPV of a project with an intial investment of $95, a cash flow in one year of $107, a nd a discount rate of 6 percent?

$5.94

A project should be ____________ if its NPV is greater than zero.

accepted

Higher cash flows earlier in a project's life are _____ valuable than higher cash flows later on.

more

In capital budgeting, _____ determines the dollar value of a project to the company.

net present value

When calculating NPV, the present value of the nth cash flow is found by dividing the nth cash flow by 1 plus _____ rate raised to the nth power. nth=n^(th)

the discount