Question

The Rowing Corp invested in a four-year project having an IRR of 13% and net cash inflows of $20,000, $40,000, $50,000 and $40,000 in years 1-4, respectively. Given the present value of $1 as 0.88496 (1 period), 0.78315 (2 periods), 0.69305 (3 periods), and 0.61332 (4 periods), how much will the project cost?

Answer 1

For calculating the project cost, we need to find the present value of cash inflows given. We need to multiply the given cash inflows with the respective present values as per below:

Present value of cash flows = $20000 * (Present value at year 1) + $40000 * (Present value at Year 2) + $50000 * (Present value at year 3) + $40000 * (Present value at year 4)

Putting the values in the above equation, we get,

Present value of cash flows = ($20000 * 0.88496) + ($40000 * 0.78315) + ($50000 * 0.69305) + ($40000 * 0.61332)

Present value of cash flows = $17699.2 + $31326 + $34652.5 + $24532.8

Present value of cash flows = $108210.5

So, the project cost is $108210.5