Question

Calculate the net present value of the following project for discount rates of 0, 50, and 100%: (Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations. Round your answers to 2 decimal places.)

C0	C1	C2
−$7,233.75	+$4,680.00	+$19,575.00

Discount Rate	NPV
0%	$
50%
100%

b.	What is the IRR of the project?

IRR

%

Answer 1

NPV is given by:

Answer a)

Discount rate = 0%

NPV = [ 4680 / (1 + 0%)^¹ ] + [ 19575 / (1 + 0%)^² ] - Initial Investment

NPV = 4680 + 19575 - 7233.75

NPV = $17021.25

Discount rate = 50%

NPV = [ 4680 / (1 + 50%)^¹ ] + [ 19575 / (1 + 50%)^² ] - Initial Investment

NPV = 3120 + 8700 - 7233.75

NPV = $4586.25

Discount rate = 100%

NPV = [ 4680 / (1 + 100%)^¹ ] + [ 19575 / (1 + 100%)^² ] - Initial Investment

NPV = 2340 + 4893.75 - 7233.75

NPV = $0

Discount Rate (r)	NPV
0%	17021.25
50%	4586.25
100%	0

-------------------------------------------------

Answer b)

In answer (a), we found that at discount rate 100%, we have NPV = 0

Hence, IRR = 100%

At irr

NPV = 0

NPV = 0 = [ 4680 / (1 + r%)^¹ ] + [ 19575 / (1 + r%)^² ] - Initial Investment

0 = [ 4680 / (1 + 100%)^¹ ] + [ 19575 / (1 + 100%)^² ] - 7233.75

Solving for r

r = 100%