A project that provides annual cash flows of $20,000 for 5 years costs $64,000 today. a....

A project that provides annual cash flows of $20,000 for 5 years costs $64,000 today.
a. If the required return is 14 percent, what is the NPV for this project?

b. Determine the IRR for this project.

Expert Solution

a

Year	Cash flow	× factor@ 14.00%	Present value
0	$ (64,000.00)	1.0000	$ (64,000.00)
1	$ 20,000.00	0.8772	$ 17,543.86
2	$ 20,000.00	0.7695	$ 15,389.35
3	$ 20,000.00	0.6750	$ 13,499.43
4	$ 20,000.00	0.5921	$ 11,841.61
5	$ 20,000.00	0.5194	$ 10,387.37





NPV		3.4331	$ 4,661.62

NPV is 4,661.62

b

Year	Cash flow	× factor@ 16.99%	Present value
0	$ (64,000.00)	1.0000	$ (64,000.00)
1	$ 20,000.00	0.8548	$ 17,095.32
2	$ 20,000.00	0.7306	$ 14,612.49
3	$ 20,000.00	0.6245	$ 12,490.26
4	$ 20,000.00	0.5338	$ 10,676.25
5	$ 20,000.00	0.4563	$ 9,125.69





NPV		3.2000	$ 0.00

IRR is 16.99%

please rate.

jeff jeffy answered 1 year ago

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