Question

1. A project you are evaluating has expected cash flows of $120,000, $140,000, $150,000 and $150,000. If the required outlay is $250,000, then:
   1. What is the NPV of the project if your required rate is 14%?

2. What is the IRR for the project?

1. A project is using heavy equipment. The equipment will have a purchase price of $550,000. The equipment needs to be transported overseas, and this cost will be $25,000. In addition, once the equipment arrives it will require significant installation which you estimate will be $50,000. Current asset investment will increase by $15,000, while current liabilities will increase by $5000. You will sell existing equipment if you accept the project for $20,000, and the book value of this equipment is 0. Your tax rate is 40%. What is the initial outlay for the project?

Answer 1

1)

B9 1 2 3 4 - X fx =IRR(B3:38) A B C D Year Cash flows PVIF@14% Present value А В Т Ах В 0 $ 250,000 1.000 $ (250,000) 1 $ 120,000 0.877 $ 105,263 2 $ 140,000 0.769 $ 107,725 3 $ 150,000 0.675 $ 101,246 4 $ 150,000 0.592 $ 88,812 5 9 IRR 40.22% 10 11 Net present value $ 153,046

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