Question

In: Finance

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.

Solutions

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.


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