Question

Robbins Inc. is considering a project that has the following cash flow and cost of capital (r) data. What is the project's NPV? Note that if a project's expected NPV is negative, it should be rejected.

r.	10.25%
Year	0	1	2	3	4	5
Cash flows	−$1,000	$300	$300	$300	$300	$300

a. $117.33

b. $105.89

c. $123.51

d. $130.01

e. $111.47 Reed Enterprises is considering a project that has the following cash flow and cost of capital (r) data. What is the project's NPV? Note that a project's expected NPV can be negative, in which case it will be rejected. r. 10.00% Year 0 1 2 3 Cash flows −$1,050 $450 $460 $470 a. $112.28 b. $92.37 c. $106.93 d. $101.84 e. $96.99 Spence Company is considering a project that has the following cash flow data. What is the project's IRR? Note that a project's IRR can be less than the cost of capital or negative, in both cases it will be rejected. Year 0 1 2 3 4 Cash flows −$1,050 $400 $400 $400 $400 a. 15.61% b. 21.20% c. 14.05% d. 19.27% e. 17.34%

Answer 1

NPV = PV of Cash Inflows - PV of Cash Outflows

Part 1:

OPtion D Correct.

Part 2:

Part 3:

IRR is the rate at which PV of cash inflows and PV Cash Outflows are equal.

IRR = Rate at which least +ve NPV + [ NPV at that rate / change in NPV due to 1% inc in disc rate ] * 1%

= 19% + [ 5.43 / 19.94 ] * 1%

= 19% + 0.27%

= 19.27 %

OPtion D is correct