Question

A project has annual cash flows of $6,000 for the next 10 years and then $5,500 each year for the following 10 years. The IRR of this 20-year project is 12.46%. If the firm's WACC is 9%, what is the project's NPV? Round your answer to the nearest cent. Do not round your intermediate calculations.

Answer 1

Year	Cash flow	PV factor @ 12.46%	Present values
1	6,000	0.889	5,335
2	6,000	0.791	4,744
3	6,000	0.703	4,218
4	6,000	0.625	3,751
5	6,000	0.556	3,335
6	6,000	0.494	2,966
7	6,000	0.440	2,637
8	6,000	0.391	2,345
9	6,000	0.348	2,085
10	6,000	0.309	1,854
11	5,500	0.275	1,511
12	5,500	0.244	1,344
13	5,500	0.217	1,195
14	5,500	0.193	1,063
15	5,500	0.172	945
16	5,500	0.153	840
17	5,500	0.136	747
18	5,500	0.121	664
19	5,500	0.107	591
20	5,500	0.096	525
		Total	42,698
AT IRR the PV of inflow is equal to Outflow and hence
Initial Outflow is 42,698
Now let's calculate the NPV @ 9%
Year	Cash flow	PV factor @ 9%	Present values
0	(42,698)	1.000	(42,698)
1	6,000	0.917	5,505
2	6,000	0.842	5,050
3	6,000	0.772	4,633
4	6,000	0.708	4,251
5	6,000	0.650	3,900
6	6,000	0.596	3,578
7	6,000	0.547	3,282
8	6,000	0.502	3,011
9	6,000	0.460	2,763
10	6,000	0.422	2,534
11	5,500	0.388	2,131
12	5,500	0.356	1,955
13	5,500	0.326	1,794
14	5,500	0.299	1,646
15	5,500	0.275	1,510
16	5,500	0.252	1,385
17	5,500	0.231	1,271
18	5,500	0.212	1,166
19	5,500	0.194	1,070
20	5,500	0.178	981
		NPV	10,718