Mccann co. has identified an investment project with the following cash flows.

col1 year 1 2 3 4
col2 cash flow $ 530 690 875 1,090

a. if the discount rate is 10 percent, what is the present value of these cash flows
b. what is the present value at 18 percent? (do not round intermediate calculations
c. what is the present value at 24 percent? (do not round intermediate calculations e. g., 32.16.) and round your answer to 2 decimal places,

Explanation:

Cash flow is 530 , 690 , 875 and 1090 in 1st to 4 th year respectively

discount rate = 10 %

NPV = 530/ 1.10 + 690 / (1.10)² + 875/(1.10)³ + 1090/ (1.10)⁴

= (530x1.10³ + 690 x 1.10² + 875x 1.10 + 1090)/ 1.10⁴

= (705.43 x  +834.9 +962.5 +1090)1.10⁴

= 3592.83 / 1.10⁴

= 2453.95

Discount rate 18%

NPV = 530/ 1.18 + 690 / (1.18)² + 875/(1.18)³ + 1090/ (1.18)⁴

= (530x1.18³ + 690 x 1.18² + 875x 1.18 + 1090)/ 1.18⁴

= (870.80696 +960.756 +1032.5 +1090)1.18⁴

= 2039.46

Discount rate 24%

NPV = 530/ 1.24 + 690 / (1.24)² + 875/(1.24)³ + 1090/ (1.24)⁴

= (530x1.24³ + 690 x 1.24² + 875x 1.24 + 1090)/ 1.24⁴

1010.51072+ 1060.944+1085+1090 / 1.24⁴

= 1796.14

rational decision making is a multi-step process for making choices between alternatives. the process of rational decision making favors logic, objectivity, and analysis over subjectivity and insight. the word “rational” in this context does not mean sane or clear-headed as it does in the colloquial sense.

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