A project that provides annual cash flows of $11,700 for 12 years costs $79,720 today. |
a. If the required return is 15 percent, what is the NPV for this project? |
b. Determine the IRR for this project. |
a. NPV = Present Value of Cash Inflows - Present Value of Cash Outflows
= [ 11700*1/(1.15)^1+11700*1/(1.15)^2+11700*1/(1.15)^3+11700*1/(1.15)^4+11700*1/(1.15)^5+11700*1/(1.15)^6+11700*1/(1.15)^7+11700*1/(1.15)^8+11700*1/(1.15)^9+11700*1/(1.15)^10+11700*1/(1.15)^11+11700*1/(1.15)^12]-79,720
=- $ 16,298.76
Answer = - $ 16,298.76
b.
Let the IRR be x.
Now , Present Value of Cash Outflows=Present Value of Cash Inflows
79,720 = 11700/(1.0x) +11700/ (1.0x)^2 +11700/(1.0x)^3+ 11700/(1.0x)^12
Or x= 10.00%
Hence the IRR is 10.00%
A project that provides annual cash flows of $11,700 for 12 years costs $79,720 today. ...
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