Question

Goodyear Tire & Rubber Co has a project with initial investment requiring $-120,000 and the following cash flows will be generated because of the project: $27,000; $31,000; $53,000; $41,000; and $29,000 respectively at the end of each year for the next five years. If the required rate of return is 0.17, find the internal rate of return (IRR) of the project.

21.80%

14.87%

15.90%

none of the answers is correct

10.85%

Xylem Inc has a project with initial investment requiring $-240,000 and the following cash flows will be generated because of the project: $60,000; $51,000; $66,000; and $41,000 respectively at the end of each year for the next four years. If the required rate of return is 0.12, find the Net Present Value (NPV) of the project.

-$28,847

-$53,079

-$72,738

none of the answers is correct

-$57,695

Answer 1

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

• Press the CF button.
• CF0= -$120,000. 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 14.87%.

Hence, the answer is option b.

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

• Press the CF button.
• CF0= -$240,000. It is entered with a negative sign 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 12%.
• Press the down arrow and CPT buttons to get the net present value.

The net present value at 12% required rate of return is -$72,737.95    -$72,738.

Hence, the answer is option c.

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