Question

A project has annual cash flows of $5,000 for the next 10 years and then $7,500 each year for the following 10 years. The IRR of this 20-year project is 12.85%. If the firm's WACC is 11%, what is the project's NPV? Do not round intermediate calculations. Round your answer to the nearest cent.

Answer 1

For calculating IRR, we need Initial Investment which is not given in this question

Also at IRR, Present Value of Cash Inflow = Cash Outflow

Year	Cash Flows	PV Factor @ 12.85%	PV of Cash Flows
1	5,000	0.8861	4,430.66
2	5,000	0.7852	3,926.15
3	5,000	0.6958	3,479.09
4	5,000	0.6166	3,082.93
5	5,000	0.5464	2,731.88
6	5,000	0.4842	2,420.81
7	5,000	0.4290	2,145.16
8	5,000	0.3802	1,900.89
9	5,000	0.3369	1,684.44
10	5,000	0.2985	1,492.64
11	7,500	0.2645	1,984.01
12	7,500	0.2344	1,758.10
13	7,500	0.2077	1,557.90
14	7,500	0.1841	1,380.51
15	7,500	0.1631	1,223.31
16	7,500	0.1445	1,084.02
17	7,500	0.1281	960.58
18	7,500	0.1135	851.20
19	7,500	0.1006	754.28
20	7,500	0.0891	668.39
Present Value of Cash Inflows	39,516.95

Therefore, Initial Investment = $39,516.95

Now,

NPV = Present Value of Cash Inflows - Initial Investment

Year	Cash Flows	PV Factor @ 11%	PV of Cash Flows
0	-39,516.95	1	-39,516.95
1	5,000.00	0.9009	4,504.50
2	5,000.00	0.8116	4,058.11
3	5,000.00	0.7312	3,655.96
4	5,000.00	0.6587	3,293.65
5	5,000.00	0.5935	2,967.26
6	5,000.00	0.5346	2,673.20
7	5,000.00	0.4817	2,408.29
8	5,000.00	0.4339	2,169.63
9	5,000.00	0.3909	1,954.62
10	5,000.00	0.3522	1,760.92
11	7,500.00	0.3173	2,379.62
12	7,500.00	0.2858	2,143.81
13	7,500.00	0.2575	1,931.36
14	7,500.00	0.2320	1,739.96
15	7,500.00	0.2090	1,567.53
16	7,500.00	0.1883	1,412.19
17	7,500.00	0.1696	1,272.24
18	7,500.00	0.1528	1,146.17
19	7,500.00	0.1377	1,032.58
20	7,500.00	0.1240	930.25
NPV	5,484.93

Therefore, NPV = 5,484.93