Homework Answers
NPV = Present value of cash inflows – Present value of cash outflows
NPV = 0 at IRR
Hence, 0 = -12,000 + 2,500*PVF(23%, 1 year) + 5,500*PVF(23%, 2 years) + x*PVF(23%, 3 years) + x*PVF(23%, 4 years)
0 = -12,000 + 2,500*0.813 + 5,500*0.661 + x*0.537 + x*0.437
0 = -6,332 + 0.974X
X = $6,501.03
i.e. $6,500 approx.
Hence, the answer is D.
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