Question

A project has annual cash flows of $4,500 for the next 10 years and then $10,000 each year for the following 10 years. The IRR of this 20-year project is 9.53%. 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

First we have to compute the initial investment
We have to compute the PV of the cash flow using IRR.
	i	ii	iii=i*ii
Year	Cash flow	PVIF @ 9.53%	Present value
1	4,500	0.912992	4,108.46
2	4,500	0.833554	3,750.99
3	4,500	0.761028	3,424.63
4	4,500	0.694813	3,126.66
5	4,500	0.634358	2,854.61
6	4,500	0.579164	2,606.24
7	4,500	0.528772	2,379.47
8	4,500	0.482764	2,172.44
9	4,500	0.44076	1,983.42
10	4,500	0.40241	1,810.85
11	10,000	0.367397	3,673.97
12	10,000	0.335431	3,354.31
13	10,000	0.306246	3,062.46
14	10,000	0.2796	2,796.00
15	10,000	0.255272	2,552.72
16	10,000	0.233062	2,330.62
17	10,000	0.212783	2,127.83
18	10,000	0.194269	1,942.69
19	10,000	0.177366	1,773.66
20	10,000	0.161934	1,619.34
			53,451.38
therefore intial investment =	53,451.38
Now we can compute the NPV
	i	ii	iii=i*ii
Year	Cash flow	PVIF @ 8%	Present value
0	(53,451.38)	1	(53,451.38)
1	4,500	0.925926	4,166.67
2	4,500	0.857339	3,858.02
3	4,500	0.793832	3,572.25
4	4,500	0.73503	3,307.63
5	4,500	0.680583	3,062.62
6	4,500	0.63017	2,835.76
7	4,500	0.58349	2,625.71
8	4,500	0.540269	2,431.21
9	4,500	0.500249	2,251.12
10	4,500	0.463193	2,084.37
11	10,000	0.428883	4,288.83
12	10,000	0.397114	3,971.14
13	10,000	0.367698	3,676.98
14	10,000	0.340461	3,404.61
15	10,000	0.315242	3,152.42
16	10,000	0.29189	2,918.90
17	10,000	0.270269	2,702.69
18	10,000	0.250249	2,502.49
19	10,000	0.231712	2,317.12
20	10,000	0.214548	2,145.48
			7,824.65
NPV=			7,824.65