Question

Suppose you are offered a project with the following payments:

Year Cash Flows 0 $ 8,900

1 − 4,600

2 − 3,300

3 − 2,400

4 − 1,700 a.

What is the IRR of this offer? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

IRR 15.96 15.96 Correct %

d-1. What is the NPV of the offer if the appropriate discount rate is 11 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.)

NPV ???

d-2. What is the NPV of the offer if the appropriate discount rate is 23 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.)

NPV ??

Answer 1

B8 fx =IRR(B3:37) A 1 Project A 2 year C ash flows pv@11% Present value 0 $ 8,900.00 8,900.00 1.0000 $ 1 $ (4,600.00)| 0.9009 $ -4,144.14 2 $ (3,300.00)| 0.8116 $ -2,678.35 3 $ (2,400.00) 0.7312 $ -1,754.86 4 $ (1,700.00) 0.6587 $ -1,119.84 15.96% NPV $ -797.20 8 IRR 9 10 Project B 11 year Cash flows pv@23% Present value 0 $ 8,900.00 1.0000 $ 8,900.00 1 $ (4,600.00)| 0.8130 $ -3,739.84 2 $ (3,300.00)| 0.6610 $ -2,181.24 3 $ (2,400.00) 0.5374 $ -1,289.72 4 $ (1,700.00) 0.4369 $ -742.73 15.96% NPV $ 946.47 IRR

B8 fc IRR(B3:37) 1 Project A 2 year 30 pv@11% 52 Cash flows 8900 -4600 - 3300 -2400 -1700 =IRR(B3:37) =C3/1.11 =C4/1.11 =C5/1.11 =C6/1.11 INPV Present value =B3*C3 =B4*C4 =B5*C5 =B6*C6 =B7*CZ =SUM(D3:07) 63 74 8 IRR 9 10 Project B 11 year 12 O 13 1 14 2 15 3 16 4 17 IRR 18 Cash flows pv@23% 8900 -4600 =C12/1.23 -3300 =C13/1.23 -2400 =C14/1.23 -1700 C15/1.23 =IRR(B12:B16) NPV Present value =B12*C12 =B13*C13 =B14*C14 =B15*C15 =B16*C16 =SUM(D12:016)