Question

A project has the following cash flows: Year Cash Flow $74,000 -56.000 -26,800 2 . 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 6 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.) 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 22 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.) Internal rate of return NPV NPV d. NPV

Answer 1

Part A:

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

Year	CF	PVF @9%	Disc CF	PVF @8%	Disc CF
0	74000	1.0000	$ 74,000.00	1.0000	$ 74,000.00
1	-56000	0.9174	$ -51,376.15	0.9259	$ -51,851.85
2	-26800	0.8417	$ -22,557.02	0.8573	$ -22,976.68
NPV			$          66.83		$      -828.53

IRR = Rate at which least +ve NPV - [ NPV at that Rate / Change in NPV due to 1% dec in Disc rate ] * 1%

= 9% - [ 66.83 / 895.36 ] * 1%

= 9% - 0.07%

= 8.93%

Part B:

NPV = PV of Cash Inflows - PV of Cash outflows

Year	CF	PVF @6%	Disc CF
0	74000	1.0000	$ 74,000.00
1	-56000	0.9434	$ -52,830.19
2	-26800	0.8900	$ -23,851.90
NPV			$   -2,682.09

Part C:

Year	CF	PVF @0%	Disc CF
0	$ 74,000.00	1.0000	$ 74,000.00
1	$ -56,000.00	1.0000	$ -56,000.00
2	$ -26,800.00	1.0000	$ -26,800.00
NPV			$   -8,800.00

Part D:

Year	CF	PVF @22%	Disc CF
0	$ 74,000.00	1.0000	$ 74,000.00
1	$ -56,000.00	0.8197	$ -45,901.64
2	$ -26,800.00	0.6719	$ -18,005.91
NPV			$ 10,092.45