Question

A project has annual cash flows of $8,000 for the next 10 years and then $9,500 each year for the following 10 years. The IRR of this 20-year project is 9.98%. 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

present value of cash inflows at 9.98% discount rate = NPV =0 At IRR, npv = 0

Calculation of initial investment: year cash flows pv @ 9.98% year 1 $8,000 $8,000 $8,000 $8,000 $8,000 $8,000 $8,000 $8,000 $8,000 $8,000 $9,500 $9,500 $9,500 $9,500 $9,500 $9,500 $9,500 $9,500 $9,500 $9,500 0.90926 0.82675 0.75172 0.68351 0.62149 0.56509 0.51381 0.46719 0.42479 0.38624 0.35120 0.31933 0.29035 0.26400 0.24005 0.21826 0.19846 0.18045 0.16407 0.14919 Present value $0.00 $7,274.05 $6,613.98 $6,013.80 $5,468.08 $4,971.89 $4,520.72 $4,110.49 $3,737.49 $3,398.34 $3,089.96 $3,336.36 $3,033.60 $2,758.32 $2,508.02 $2,280.44 $2,073.50 $1,885.34 $1,714.26 $1,558.70 $1,417.26 $71,764.61 cash flows -$71,765 $8,000.00 $8,000.00 $8,000.00 $8,000.00 $8,000.00 $8,000.00 $8,000.00 $8,000.00 $8,000.00 $8,000.00 $9,500.00 $9,500.00 $9,500.00 $9,500.00 $9,500.00 $9,500.00 $9,500.00 $9,500.00 $9,500.00 $9,500.00 | pv @ 9% 1 0.9174 0.8417 0.7722 0.7084 0.6499 0.5963 0.5470 0.5019 0.4604 0.4224 0.3875 0.3555 0.3262 0.2992 0.2745 0.2519 0.2311 Present value -$71,764.61 $7,339.45 $6,733.44 $6,177.47 $5,667.40 $5,199.45 $4,770.14 $4,376.27 $4,014.93 $3,683.42 $3,379.29 $3,681.56 $3,377.58 $3,098.70 $2,842.84 $2,608.11 $2,392.76 $2,195.20 $2,013.94 $1,847.65 $1,695.09 $5,330.09 11 0.2120 19 20 0.1945 0.1784 Initial investment net present value (NPV)