3 October 2003 QUESTION3 (Continued) Step 5-Calculate Amount of Funding From Firms reserves The firm must advance $3 435 754($5 000 000-$1 564 246)from its own reserves Step 6-Calculate NPv NPV=PVof LCF-Investment not borrowed =$2747206-$3435754 $688548 The project should be rejected -negative NPV.3 October 2003 QUESTION 3 (Continued) Step 5 – Calculate Amount of Funding From Firm’s Reserves The firm must advance $3 435 754 ($5 000 000 - $1 564 246) from its own reserves. Step 6 – Calculate NPV - $688 548 $2 747 206 - $3 435 754 NPV PV of LCF - Investment not borrowed = = = The project should be rejected – negative NPV