Question

Project K costs $65,000, its expected cash inflows are $13,000 per year for 11 years, and...

Project K costs $65,000, its expected cash inflows are $13,000 per year for 11 years, and its WACC is 12%. What is the project's NPV? Round your answer to the nearest cent.

Project K costs $48,457.36, its expected cash inflows are $10,000 per year for 11 years, and its WACC is 12%. What is the project's IRR? Round your answer to two decimal places.

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Answer #1

NPV = PV of Cash Inflows - PV of Cash Outflows

Year CF PVF @12% Disc CF
0 $ -65,000.00     1.0000 $ -65,000.00
1 $ 13,000.00     0.8929 $ 11,607.14
2 $ 13,000.00     0.7972 $ 10,363.52
3 $ 13,000.00     0.7118 $    9,253.14
4 $ 13,000.00     0.6355 $    8,261.74
5 $ 13,000.00     0.5674 $    7,376.55
6 $ 13,000.00     0.5066 $    6,586.20
7 $ 13,000.00     0.4523 $    5,880.54
8 $ 13,000.00     0.4039 $    5,250.48
9 $ 13,000.00     0.3606 $    4,687.93
10 $ 13,000.00     0.3220 $    4,185.65
11 $ 13,000.00     0.2875 $    3,737.19
NPV $ 12,190.09

IRR is the Rate at which PV of cash Inflows are equal to PV of Cash Outflows.

Year CF PVF @16% Disc CF PVF @17% Disc CF
0 $ -48,457.36     1.0000 $ -48,457.36     1.0000 $ -48,457.36
1 $ 10,000.00     0.8621 $    8,620.69     0.8547 $    8,547.01
2 $ 10,000.00     0.7432 $    7,431.63     0.7305 $    7,305.14
3 $ 10,000.00     0.6407 $    6,406.58     0.6244 $    6,243.71
4 $ 10,000.00     0.5523 $    5,522.91     0.5337 $    5,336.50
5 $ 10,000.00     0.4761 $    4,761.13     0.4561 $    4,561.11
6 $ 10,000.00     0.4104 $    4,104.42     0.3898 $    3,898.39
7 $ 10,000.00     0.3538 $    3,538.30     0.3332 $    3,331.95
8 $ 10,000.00     0.3050 $    3,050.25     0.2848 $    2,847.82
9 $ 10,000.00     0.2630 $    2,629.53     0.2434 $    2,434.04
10 $ 10,000.00     0.2267 $    2,266.84     0.2080 $    2,080.37
11 $ 10,000.00     0.1954 $    1,954.17     0.1778 $    1,778.10
NPV $    1,829.08 $        -93.23

IRR = Rate at which Least +ve NPV + [ NPV at that Rate / Change in NPV due to 1% inc in Disc Rate ] * 1%

= 16% + [ 1829.08 / 1922.31 ] * 1%

= 16% + 0.95%

= 16.95%

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