Question

In: Finance

Begin by plotting how the NPV of this project changes with different discount rates. Note that...

Begin by plotting how the NPV of this project changes with different discount rates. Note that you'll have to find the NPV of the project first using a discount rate of your choosing. Use a data table to create this plot. Have your discount rates range from 0% to 60% in increments of 2%. Please label your x-axis "Discount Rate" and your y-axis "Net Present Value of Cash Flows". Title your graph "NPV Calculation". There should be no legend on the graph. How many IRRs does this project have? What are they? Perform your IRR calculations in the box on the left.

Year

Cash Flow

0

-1000

1

800

2

1000

3

1300

4

-2200

Solutions

Expert Solution

Given Cash flow in year 0 CF0=-1000

Cash flow in year 1 CF1=800

Cash flow in year 2 CF2=1000

Cash flow in year 3 CF3=1300

Cash flow in year 4 CF4=-2200

let r be discount rate

NPV= CF0+CF1/(1+r)+CF2/(1+r)^2+CF3/(1+r)^3+CF4/(1+r)^4

For

Discount Rate NPV
0% -100.00
2.00% -61.96
4.00% -31.09
6.00% -6.39
8.00% 13.00
10.00% 27.80
12.00% 38.65
14.00% 46.11
16.00% 50.63
18.00% 52.64
20.00% 52.47
22.00% 50.44
24.00% 46.82
26.00% 41.83
28.00% 35.68
30.00% 28.54
32.00% 20.56
34.00% 11.88
36.00% 2.61
38.00% -7.14
40.00% -17.28
42.00% -27.75
44.00% -38.47
46.00% -49.39
48.00% -60.45
50.00% -71.60
52.00% -82.82
54.00% -94.07
56.00% -105.31
58.00% -116.52
60.00% -127.69

From Above graph we find that it has TWO IRRs. two IRRs are 6.60% and 36.55%.

IRR occured when NPV=0

Let R be the IRR

-1000+800/(1+R)+1000/(1+R)^2+1300/(1+R)^3-2200/(1+R)^4=0

R=6.60% and 36.55%

jeff jeffy answered 8 months ago
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