Question
In: Finance
A capital project has an initial investment of $100,000 and cash flows in years 1-6 of...
A capital project has an initial investment of $100,000 and cash flows in years 1-6 of $25,000, $15,000, $50,000, $10,000, $10,000, and $60,000, respectively. Given a 15 percent cost of capital,
- (a) compute the net present value.
- (b) compute the internal rate of return
- (c) should the project be accepted? Why or why not?
Solutions
Expert Solution
| i | ii | iii | iv=ii*iii |
| Year | Cash flow | PVIF @15% | Present value |
| 0 | -100000 | 1.0000 | (100,000.00) |
| 1 | 25000 | 0.8696 | 21,739.13 |
| 2 | 15000 | 0.7561 | 11,342.16 |
| 3 | 50000 | 0.6575 | 32,875.81 |
| 4 | 10000 | 0.5718 | 5,717.53 |
| 5 | 10000 | 0.4972 | 4,971.77 |
| 6 | 60000 | 0.4323 | 25,939.66 |
| 2,586.05 | |||
| NPV = | 2,586.05 | ||
| IRR = | 16% | 16% | |
| c) | Yes, project should be accepted |
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