Question

A project has annual cash flows of $7,500 for the next 10 years and then $10,500 each year for the following 10 years. The IRR of this 20-year project is 10.12%. If the firm's WACC is 8%, what is the project's NPV? Do not round intermediate calculations. Round your answer to the nearest cent.

Answer 1

For the NPV of the project to be zero, the zero period cash flow should be equal to -$70,326.04

we will use the financial calculator to compute the answer:

Present value of first 10 years

N = 10

I/Y = 8%

PMT = 7500

FV = 0

PV = $50,325.61

Present value of next 10 years

N = 10

I/Y = 8%

PMT = 10,500

FV = 0

PV = $70,455.85

Now, we will discount it to zero period

N = 10

I/Y = 8%

PMT = 0

FV = $70,455.85

PV = $32634.69

Total present value = $50,325.61 + $32634.69

= $82960.30

Now to get the NPV,

NPV = $82960.30 - $70,326.04

NPV = 12,634.26

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