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Consider the following cash flows: Cash Flows ($) CO С1 -7,750 5,500 20,000 a. Calculate the net present value of the above pb. What is the IRR of the project? (Do not round intermediate calculations. Enter your answer as a percent rounded to the nea

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Answer #1

Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

At 0%:

Present value of inflows=5500+20,000=25500

NPV=Present value of inflows-Present value of outflows

=25500-7750

=$17750

At 50%:

Present value of inflows=5500/1.5+20,000/1.5^2=12,556

NPV=Present value of inflows-Present value of outflows

=12,556-7750

=$4806(Approx).

At 100%:

Present value of inflows=5500/2+20,000/2^2=7750

NPV=Present value of inflows-Present value of outflows

7750-7750

=0

b.Let irr be x%
At irr,present value of inflows=present value of outflows.

7750=5500/1.0x+20,000/1.0x^2

Hence x=irr=100%

a.

NPV@0% 17750
NPV@50% 4806
NPV@100% 0

b.Irr=100%

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