Question

1. You are considering a project that needs $50,000 investment to start. This is a 5 year project and you are expecting that the project generates annual cash flows after taxes of $10,000, $50,000, $90,000, $20,000 and -$30,000 respectively. What is the NPV of this project if the required rate of return is 8%? Round to the penny. Do not include the dollar sign. If there are multiple answers, then type NA.

2. You are considering a project that needs $50,000 investment to start. This is a 5 year project and you are expecting that the project generates annual cash flows after taxes of $10,000, $50,000, $90,000, $20,000 and -$30,000 respectively. What is the IRR of this project if the required rate of return is 8%? Round to the nearst hundredth pecent. Do not include the percent sign in your answer. If there are multiple answers, then type NA. (i.e. if your answer were -12.34%, type 12.34 as your answer.)

Answer 1

1. Net present value is solved using a financial calculator. The steps to solve on the financial calculator:

• Press the CF button.
• CF0= -$50,000. It is entered has a negative value since it is a cash outflow.
• Cash flow for all the years should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow, press the NPV button and enter the required rate of return of 8%.
• Press the down arrow and CPT buttons to get the net present value.

Net Present value of cash flows at 8% the required rate of return is 67,854.20.

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

• Press the CF button.
• CF0= -$50,000. It is entered with a negative sign since it is a cash outflow.
• 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 and CPT button to get the IRR of the project.

The IRR of project is 57.08.

In case of any query, kindly comment on the solution.