Question

A project has annual cash flows of $6,000 for the next 10 years and then $6,000 each year for the following 10 years. The IRR of this 20-year project is 13.76%. 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.

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Answer 1

NPV=Pv of inflows -Initial Outflows

The NPV of the project can be found out suing the excel function =NPV()

Here the IRR is given as 13.76%

IRR is the rate at which the NPV =0

Let X be the initial investment.

The PV of inflows at 13.76% can be computed using the excel formula =NPV(13.47%,B3:B22)

We get the Present Value of inflows as $40,295.31

Since the IRR =0

$40,295.31-x=0

So the initial investment x =$40,295.31

The NPV can now be calculated, the discount rate is given as 8%

The formula used =NPV(8%,B3:B22)-B23

We get the NPV as $18,613.57