Question

A project that costs $2,800 to Install will provide annual cash flows of $780 for each of the next 6 years. a Calculate the NPV If the opportunity cost of capital is 10%? (Do not round Intermediate calculations. Round your answer to 2. decimal places.) NPV b. Is this project worth pursuing? Yes No c. What is the project's Internal rate of return IRR? (Do not round Intermediate calculations. Round your answer to 2 decimal places.)

Answer 1

a
Project
Discount rate	0.1
Year	0	1	2	3	4	5	6
Cash flow stream	-2800	780	780	780	780	780	780
Discounting factor	1	1.1	1.21	1.331	1.4641	1.61051	1.771561
Discounted cash flows project	-2800	709.0909	644.6281	586.0255	532.7505	484.3186	440.2897
NPV = Sum of discounted cash flows
NPV Project =	597.1
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor
b. Accept project as NPV is positive
c
Project
IRR is the rate at which NPV =0
IRR	0.169940258
Year	0	1	2	3	4	5	6
Cash flow stream	-2800	780	780	780	780	780	780
Discounting factor	1	1.16994	1.36876	1.601368	1.8735045	2.191888	2.564378
Discounted cash flows project	-2800	666.7007	569.8588	487.0836	416.33206	355.8575	304.1673
NPV = Sum of discounted cash flows
NPV Project =	6.91653E-07
Where
Discounting factor =	(1 + IRR)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor
IRR=	17%
Accept project as IRR is more than discount rate