Question

A project has annual cash flows of $5,500 for the next 10 years and then $9,000 each year for the following 10 years. The IRR of this 20-year project is 13.38%. If the firm's WACC is 9%, what is the project's NPV? Do not round intermediate calculations. Round your answer to the nearest cent.

Answer 1

At IRR rate, Discounted Cash inflows = Discounted Cash Outflows IRR = 13.38% Year Cashflows PVA Factor @ 13.38% Discounted Cash Flows 01-10 $5,500 5.344823423 $29,396.53 '11-20 $9,000 1.522540436 $13,702.86 Total S43,099.39 Since it is discounted at IRR rate, the discounted cash outflow = $ 43,099.39 Discounted Cash Outflows (Approximately) = $43,100.00 (Initial Investment) NPV Calculation WACC = 9% Year Cashflows PVA Factor @ 9% Discounted Cash Flows 01-10 $5,500 6.417657701 $35,297.12 '11-20 $9,000 2.710887968 $24,397.99 Discounted Cash Inflows $59,695.11 Less: initial Investment -$43,099.39 Net Present Value (PV) S16,595.72