Question

7. A firm is starting a new project that will cost $200,000. It is projected to last 5 years and to generate cash flows of $50,000, $70,000, $90,000, $50,000 and $30,000 from Years 1 through 5 respectively. If the discount rate is 10%, what is the IRR of this project? Answer in the percent format. Round to the hundredth decimal place. Type only numbers without any unit ($, %, etc.)

8. A firm is starting a new project that will cost $200,000. It is projected to last 5 years and to generate cash flows of $50,000, $70,000, $90,000, $50,000 and $30,000 from Years 1 through 5 respectively. If the discount rate is 10%, what is the EAA of this project? Round to the nearest penny. Do not include any unit such as $, %, etc.

Answer 1

Ques-7)

Calculating the IRR of the Project using the Excel function:-

So, IRR of the Project is 14.80%

Ques-8)

Firstly, Calculating the NPV of the Project:-

Year	Cash Flows of Project ($)	PV Factor @10.00%	Present Value of Project ($)
0	(200,000.00)	1.0000	(200,000.00)
1	50,000.00	0.9091	45,454.55
2	70,000.00	0.8264	57,851.24
3	90,000.00	0.7513	67,618.33
4	50,000.00	0.6830	34,150.67
5	30,000.00	0.6209	18,627.64
			23,702.43

NPV of the Project = $23,702.43

Now, Calculating EAA of the Project:-

where, r = Discount rate = 10%

NPV = $23,702.43

n = no of years = 5

So, EAA of the Project is $6,252.64

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