How to calculate IRR and NPV. THomas Company is investing $10,000 in a project that has...
How to calculate IRR and NPV.
THomas Company is investing $10,000 in a project that has a two-year life with an internal rate of return (IRR) of 10%. The project yields a net cash flow of $7,260 for year 2.
The present value of $1 for one year at 10 percent is .90909
THe present value of $1 for two years at 10 percent is .86245
what is cash flow produces by the project for year 1?
a. 2,740
b. 4,400
c. 4,000
d. 6,000
Homework Answers
NPV = Present value of cash inflows - Present value of cash outflows
IRR is the rate at which NPV = 0
Hence, present value of cash inflows - Present value of cash outflows
Cash flow in year 1*0.90909 + 7,260*0.86245 = 10,000
Cash flow in year 1 = 4,112.48
The closest answer is c.$4,000
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