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Gomi Waste Disposal is evaluating a project that would last for 4 years. The project’s internal...

Gomi Waste Disposal is evaluating a project that would last for 4 years. The project’s internal rate of return is 8.18 percent; its NPV is 8,920 dollars; and the expected cash flows are -56,800 dollars at time 0, 10,500 dollars in 1 year, 46,300 dollars in 2 years, and X in 4 years. What is X?

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Expert Solution

Computation of NPV at discount rate of 8.18 %.

NPV = PV of future cash inflows – Initial investment

Year

Cash flow

(C)

Computation of PV Factor

PV Factor @ 8.18 % (F)

PV

(C x F)

0

-$ 56,800

1/ (1+0.0818)0

1

-$ 56,800.00

1

$ 10,500

1/ (1+0.0818)1

0.924385283786282

     $ 9706.0454798

2

$ 46,300

1/ (1+0.0818)2

0.854488152880645

$ 39,562.8014784

3

0

1/ (1+0.0818)3

0.789876273692591

                0.0000000

4

X

1/ (1+0.0818)4

0.730150003413377

                0.7301500 X

NPV

-$ 7,531.153042 + 0.7301500 X

NPV of any project is zero at discount rate equals to IRR.

-$ 7,531.153042 + 0.73015 X = 0

0.73015 X = $ 7,531.153042

X = $ 7,531.153042/0.73015

= $ 10,314.5285790591 or $ 10,315

Cash inflow X in year 4th is $ 10,315

jeff jeffy answered 2 years ago
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