Question

A project has annual cash flows of $6,500 for the next 10 years and then $7,000 each year for the following 10 years. The IRR of this 20-year project is 12.38%. If the firm's WACC is 8%, what is the project's NPV? Round your answer to the nearest cent. Do not round your intermediate calculations.

Please show all work when using a financial calculator

Answer 1

Present Value = Future value/ ((1+r)^t)
where r is the interest rate that is 8% and t is the time period in years.
Net present value (NPV) = initial investment + sum of present values of future cash flows.
The IRR (internal rate of return) is the rate at which the NPV is equal to zero.
Using the IRR calculate the initial investment, then calculate the NPV.
IRR	.1238.
Year	0	1	2	3	4	5	6	7	8	9	10	11	12	13	14	15	16	17	18	19	20
cash flow		6500	6500	6500	6500	6500	6500	6500	6500	6500	6500	7000	7000	7000	7000	7000	7000	7000	7000	7000	7000
present value using IRR		5783.947	5146.776	4579.797	4075.278	3626.337	3226.853	2871.377	2555.06	2273.59	2023.127	1938.736	1725.161	1535.114	1366.003	1215.521	1081.617	962.4642	856.4372	762.0904	678.1371
sum of present values using IRR	48283.43
Based on the sum of present values using the IRR, the initial investment is -48283.43.
Year	0	1	2	3	4	5	6	7	8	9	10	11	12	13	14	15	16	17	18	19	20
cash flow	-48283.4	6500	6500	6500	6500	6500	6500	6500	6500	6500	6500	7000	7000	7000	7000	7000	7000	7000	7000	7000	7000
present value using 8%		6018.519	5572.702	5159.91	4777.694	4423.791	4096.103	3792.688	3511.748	3251.618	3010.758	3002.18	2779.796	2573.885	2383.227	2206.692	2043.233	1891.883	1751.743	1621.984	1501.837
NPV	17088.56
The NPV is $17088.6.