Question

5. Understanding the IRR and NPV Aa Aa The net present value (NPV) and internal rate of retum (IRR) methods of investment analysis are interrelated and are sometimes used together to make capital budgeting dedisions. Consider the case of Blue Hamster Manufacturing Inc.: Last Tuesday, Blue Hamster Manufacturing Inc. lost a portion ofits planning and financial data when bath its main and its backup servers crashed. The company's CFO remembers that the internal rate of returm (IRR) of Project Delta is 13.8%, but he can't recall how much Blue Hamster originally invested in the project nor the project's net present alue (NPV). However, he found a nate that detailed the annual net cash flows expected to be generated by Project Delta. They are: Year Cash Flow Year 1 $1,800,0DD Year 2 $3,375,00D Year 3 $3,375,DDD Year 4 $3,375,000 The CFO has asked you to compute Project Delta's initial investment using the information currently available to you. He has offered the following suggestions and observations . A project's IRR represents the retum the project would generate when its NPV is zero or the discounted value of its cash inflows equals the discounted value of its cash outilows-when the cash flows are discounted using the project's IRR. . The level of risk exhibited by Project Delta is the same as that exhibited by the company's average project, which means that Project Delta's net cash flows can be discounted using Blue Hamster's 10% WACC. Given the data and hints, Project Delta's initial investment is (rounded to the nearest whole dollar). , and its NPV is A project's IRR will if the project's cash inflows increase, and everything else is unaffected. increase decrease

investment is answer is a number and npv is a number answers too