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There is a new road project which is expected to be finished in 4 years. This...

There is a new road project which is expected to be finished in 4 years. This project has an initial cost of 1 million$. After the initial cost is paid, the road project is expected to provide 250,000$ in year 1, 300,000 in year 2, 320,000 in year 3 and 450,000 in year 4. It is known that the internal rate of return in this project 10.96%. What is the net present value?

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Expert Solution

NPV is the difference between cash outlows and discounted cash inflows. IRR is the discount rate where NPV is 0 or very close to 0.

Year Cash flow PV factor@ 10.96% Discounted cash flow
0        (1,000,000) 1        (1,000,000)
1             250,000 0.901225667             225,306
2             300,000 0.812207703             243,662
3             320,000 0.731982429             234,234
4             450,000 0.659681352             296,857
                      60

PV factor = 1/(1+r)^t


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