Question

A project has annual cash flows of $8,000 for the next 10 years and then $6,500 each year for the following 10 years. The IRR of this 20-year project is 11.56%. If the firm's WACC is 8%, what is the project's NPV? Do not round intermediate calculations. Round your answer to the nearest cent.

Answer 1

At IRR, NPV of a project is zero which means the present value of all the cash inflows when discounted using the IRR becomes equal to the initial cash outflow.

А 1 Year 600 au Cash flows 8000 8000 8000 8000 8000 8000 8000 8000 8000 8000 6500 6500 6500 6500 6500 6500 6500 6500 6500 6500 $58,552.11 NPV(11.56%,B2:B21) 21 22 Initial cash outflow= 23 Formula used:

Hence the initial cash outflow=$58,552.11

Year Cash flows -58552.11 8000 8000 8000 8000 8000 8000 8000 8000 8000 8000 6500 6500 6500 6500 6500 6500 6500 6500 6500 6500 23 NPV= 15330.97 24 Formula used: E2+NPV(8%,E3:E22)

So, the value of NPV is $15330.97