Question

. Last week the company lost a portion of its financial data. IRR for project X is 14.6%.
No one can remember the original investment amount nor the NPV.
They did find the cash flows listed below:
 
Cash flows
Year 1-   2,000,000
Year 2-   3,750,000
Year 3-   3,750,000
Year 4-   3,750,000
 
Note from CFO:

The projects IRR represents the return the project would generate when the NPV is Zero or the discounted values of the cash inflows equals the discounted values of the cash outflows – when the cash flows are discounted using the projects IRR

The level of risk exhibited by this project is the same that is exhibited by the companies average project, which means, the projects net cash flow can be discounted using 8% WACC

 
Initial Investment ___?___
NPV____?____
 
A projects IRR will ____?___    If the projects inflows increase, and everything else is unaffected.
   Decrease
   Increase
   State the same

Answer 1

Initial investment = $9,266,329.6
Npv = $1,533,775.67

A projects IRR will "INCREASE" If the projects inflows increase, and everything else is unaffected.

BECAUSE THE DISCOUNTED MUST INCREASE TO MATCH:
PRESENT VALUE OF CASH INFLOW= PRESENT VALUE OF CASH OUTFLOW.

IRR:- (14.67) discount value of cash outflow (intral Investment) discounted value of cash Inflow Inprial = 2,000,000 (1.146) 3 750,00D3750ovu (1.146)2 (1.146)3 Inreement + 3750,000 (1.146) 4 Initial investment = $92 66,329.6 NPV:- = Initial (meetment presentvalue of cash on flow at wAcc 9,266,329-6 2 ODo ovo 1000 (1.08) + 37 3750Ovo + 3750000 + 3750 ono (1.08)² (1-08) 3 (1608)" = $1,533,7 75-67