Given the following cash flows for a capital project, calculate the NPV and IRR. The required...
Given the following cash flows for a capital project, calculate the NPV and IRR. The required rate of return is 8 percent
Cash Flows Year 0$-50825 Year 1 $18550 Year 2 $11350 Year 3 $20900 Year 4 $9200 Year 5 $4250
Homework Answers
The NPV of a project is the PV of the outflows minus the PV of the inflows.
NPV = -$50825 + $18550/1.08 + $11350/1.082 + $20900/1.083 + $9200/1.084 + $4250/1.085
NPV = $2,327.57
The IRR is the interest rate that makes the NPV of the project equal to zero. So, the equation that defines the IRR for this project is:
0 = -$50825 + $18550/(1 + IRR) + $11350/(1 + IRR)2 + $20900/(1 + IRR)3 + $9200/(1 + IRR)4 + $4250/(1 + IRR)5
IRR = 10.04%
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