Question

Please round to the nearest Cent (:

NPV and IRR Benson Designs has prepared the following estimates for a long-term project it is considering. The initial investment is $61,450, and the project is expected to yield after-tax cash inflows of $9,000 per year for 11 years. The firm has a cost of capital of 12%. a. Determine the net present value (NPV) for the project. b. Determine the internal rate of return (IRR) for the project. c. Would you recommend that the firm accept or reject the project? a. The NPV of the project is $ (Round to the nearest cent.)

Answer 1

The cash flows are:
Year 0: -61450
Year 1: 9000
Year 2: 9000
Year 3: 9000
Year 4: 9000
Year 5: 9000
Year 6: 9000
Year 7: 9000
Year 8: 9000
Year 9: 9000
Year 10: 9000
Year 11: 9000

܂ 1 _H 1 Year Cash flow . _0 -61450 3000 3000 3000 9000 3000 9000 917 3000 10 _8_ 9000 3000 12 _10_ 3000 1311 3000 14 NPV- -8010.71 15 IRR= 8.93%

Formulas used in excel:

H 1 Year 2 0 3 1 4 2 86 97 10 8 119 12 10 13 11 14 NPV= 15 IRR= Cash flow -61450 9000 9000 9000 9000 9000 9000 9000 9000 9000 9000 9000 =H2+NPV(12%,H3:H13) =IRR(H2:H13)

Part a:
Using excel we get the value of NPV as -$8010.71

Part b:
Value of IRR=8.93%

Part c:
As the NPV of the project is negative, it should be rejected