Question

A project has annual cash flows of $4,000 for the next 10 years and then $10,000 each year for the following 10 years. The IRR of this 20-year project is 12.5%. If the firm's WACC is 10%, what is the project's NPV?

Also, please show steps as to how to compute this problem using the BA II Plus financial calculator. Thank you!

Answer 1

Statement showing PV of cash outflow

Year	Cash flow	PVIF @ 12.5%	Present value
1	4000	0.8889	3555.56
2	4000	0.7901	3160.49
3	4000	0.7023	2809.33
4	4000	0.6243	2497.18
5	4000	0.5549	2219.72
6	4000	0.4933	1973.08
7	4000	0.4385	1753.85
8	4000	0.3897	1558.98
9	4000	0.3464	1385.76
10	4000	0.3079	1231.78
11	10000	0.2737	2737.30
12	10000	0.2433	2433.15
13	10000	0.2163	2162.80
14	10000	0.1922	1922.49
15	10000	0.1709	1708.88
16	10000	0.1519	1519.01
17	10000	0.1350	1350.23
18	10000	0.1200	1200.20
19	10000	0.1067	1066.85
20	10000	0.0948	948.31
			39194.95

( I have discounted cash flow at IRR to find PV of cashout flow as IRR = PV of cash inflow = PV of cash outflow)

Statement showing NPV

Year	Cash flow	PVIF @ 10%	Present value
1	4000	0.9091	3636.36
2	4000	0.8264	3305.79
3	4000	0.7513	3005.26
4	4000	0.6830	2732.05
5	4000	0.6209	2483.69
6	4000	0.5645	2257.90
7	4000	0.5132	2052.63
8	4000	0.4665	1866.03
9	4000	0.4241	1696.39
10	4000	0.3855	1542.17
11	10000	0.3505	3504.94
12	10000	0.3186	3186.31
13	10000	0.2897	2896.64
14	10000	0.2633	2633.31
15	10000	0.2394	2393.92
16	10000	0.2176	2176.29
17	10000	0.1978	1978.45
18	10000	0.1799	1798.59
19	10000	0.1635	1635.08
20	10000	0.1486	1486.44
			48268.23
Less: PV of cash outflow			39194.95
NPV			9073.28

Thus NPV = 9073.28$