Consider a project with the following cash flows: year 1, $400; year 2, $200; year 3,

Question:

Consider a project with the following cash flows: year 1, – $400; year 2, $200; year 3, $600; year 4, – $900; year 5, $1000; year 6, $250; year 7, $230. Assume a discount rate of 15% per year.

a. Find the project’s NPV if cash flows occur at the ends of the respective years.

b. Find the project’s NPV if cash flows occur at the beginnings of the respective years.

c. Find the project’s NPV if cash flows occur at the middles of the respective years.

Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...