Question

Times New Roman 29 12 A A Percentage Conditional Formatting 2 Format as Table Cell Styles Paste B I a.A- $ % 9 Cells Editing Ideas Create and Share Adobe PDF 3 A B с D E F G H I J K Year 5 Year 6 Year 7 Year 8 Investment Working Capital Operating Cash Flow Total Cash Flow Start Year 1 Year 2 Year 3 Year 4 (800) (300) 265 265 265 265 265 (835) 265 265 265 265 265 265 265 265 265 265 300 265 565 NPV - IRR 1 29% Note: Show all numbers in thousand dollars. 1 2. CAN YOU PLEASE VERIFY ROW 5 AND DOUBLE CHECK THE NPV AND IRR IF INCORRECT, PLEASE HELP WITH SHOWING EXCELL FORMULA. THANK YOU 3 4 5 6

no rate was given

Answer 1

As per the question we take out the following details:

                                                Thousand $

Net Outflow at 0 Year =          835

Inflow from 1 to 7 year =         265 each year

Net Inflow at 8^th Year =           565

On putting the value on Excel we get IRR = 28.94 rounded to 29 (which is not suggested as in case of large values this can make a big difference)

Excel function for IRR - =IRR (values, [guess])

· Values - Array or reference to cells that contain cash flows including positive and negative.

· Guess - [optional] an estimate for expected IRR. Default is .1 (10%).

Look at the screanshots below to understand

с D E А 1 Year 2 3 4 5 6 =IRRO IRR(values, [guess]) B Cash Flows 0 -835 1 265 2 265 3 265 4 265 5 265 6 265 7 00U wn 8 265 565 8 9 10 11 12 13

с D E А 1 Year 2 3 4 5 6 7 8 9 10 11 12 13 B Cash Flows 0 -835 1 265 2 265 265 4 265 265 =IRR(B2:B10,1) vouw 265 265 8 565

A С D E 1 Year 2 3 4 5 6 7 8 9 10 28.94% B Cash Flows 0 -835 1 265 2 265 3 265 4 265 5 265 6 265 7 265 8 565 Nm 7 o00 Сл 11 12

Please note that IRR is the rate at which Present value of Inflows is Equal to the Present value of outflows.

So since in your question there is no rate given so if we take the rate of the IRR then we will get the NPV = 0 as:

Net Present Value (NPV) = Present Value of Inflows – Present Value of Outflows

                                          = 0             (if discounted at IRR)

In Excel if you use the NPV function and select rate of IRR you will get a NPV = 0

The NPV Function is:

=NPV (rate, value1, [value2], ...)

· Rate - Discount rate over one period. (in this case the IRR)

· value1 - First value(s) representing cash flows. (select all cash flows at once)

· value2 - [optional] Second value(s) representing cash flows. (not needed here)