Question

Saved CHAPTER 8 GRADED HOMEWORK A A project has the following cash flows: Cash Flow $112,000 - 67,000 - 57,000 points 8 00:24:33 eBook a. What is the IRR for this project? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g. 32.16.) b. What is the NPV of this project if the required return is 10 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. What is the NPV of the project if the required return is O percent? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) d. What is the NPV of the project if the required return is 24 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) References a. Internal rate of return b. Net present value C. Net present value d. Net present value

Answer 1

1.IRR: It is the discount rate at which the present value of projects cash outflows (cost) is equal to the present value of projects cash inflow.

[67,000/(1+IRR)]+[57,000/(1+IRR)^2]=112,000

IRR = 7.27%

2. NPV = present value of cash inflow- the present value of cash outflow.

Discounted at the required rate of return of 10%

NPV =112000- [67,000/(1+0.10)]+[57,000/(1+0.10)^2] = $3983.47

3. NPV = present value of cash inflow- the present value of cash outflow.

Discounted at the required rate of return of 0%

NPV =112000- [67,000/(1+0.0)]+[57,000/(1+0.0)^2]= -12000

4. NPV = present value of cash inflow- the present value of cash outflow.

Discounted at the required rate of return of 24%

NPV =112000- [67,000/(1+0.24)]+[57,000/(1+0.24)^2] = $20,896.98