Question

A project has the following cash flows:

Year	Cash Flow
0	$	66,500
1		–41,000
2		–32,800

What is the IRR for this project? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Internal rate of return             %

What is the NPV of this project if the required return is 4 percent? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Net present value            $

What is the NPV of the project if the required return is 0 percent? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Net present value            $

What is the NPV of the project if the required return is 21 percent? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Net present value            $

Answer 1

1.Internal rate of return:

Internal rate of return is calculated using a financial calculator by inputting the below:

• Press the CF button.
• CF0= $66,500.
• Cash flow for each year should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow cash flow, press the IRR button and enter the interest rate to get the IRR of the project.

The IRR is 7.53%.

2.Internal rate of return when the discount rate is 4%.

This is calculated using a financial calculator by inputting the below:

• Press the CF button.
• CF0= $66,500.
• Cash flow for each year should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow cash flow, press the NPV button and enter the interest rate.
• Press enter after that. Press the down arrow and CPT buttons to get the net present value.

The net present value is -$3,248.52.

3.Internal rate of return when the discount rate is 0%.

This is calculated using a financial calculator by inputting the below:

• Press the CF button.
• CF0= $66,500.
• Cash flow for each year should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow cash flow, press the NPV button and enter the interest rate.
• Press enter after that. Press the down arrow and CPT buttons to get the net present value.

The net present value is -$7,300

4. Internal rate of return when the discount rate is 21%.

This is calculated using a financial calculator by inputting the below:

• Press the CF button.
• CF0= $66,500.
• Cash flow for each year should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow cash flow, press the NPV button and enter the interest rate.
• Press enter after that. Press the down arrow and CPT buttons to get the net present value.

The net present value is -$10,212.86.