Question

Marcy project has annual cash flows of $7,000 for the next 10 years and then $9,500 each year for the following 10 years. The IRR of this 20-year project is 12.35%. If the firm's WACC is 12%, what is the project's NPV? Do not round intermediate calculations. Round your answer to the nearest cent.

Answer 1

Project NPV = 1328 (rounded to nearest cent)

For the purpose of calculating NPV we need to find out Initial cash outflow by using IRR. IRR is the rate of return where the NPV is zero.

calculation of initial cash outflow
year	cash inflow	pvf @ 12.35%	present value of cash inflow
1	7000	0.8901	6230.530
2	7000	0.7922	5545.643
3	7000	0.7051	4936.042
4	7000	0.6276	4393.450
5	7000	0.5586	3910.503
6	7000	0.4972	3480.644
7	7000	0.4426	3098.036
8	7000	0.3939	2757.487
9	7000	0.3506	2454.372
10	7000	0.3121	2184.577
11	9500	0.2778	2638.881
12	9500	0.2472	2348.803
13	9500	0.2201	2090.613
14	9500	0.1959	1860.804
15	9500	0.1743	1656.256
16	9500	0.1552	1474.193
17	9500	0.1381	1312.143
18	9500	0.1229	1167.907
19	9500	0.1094	1039.525
20	9500	0.0974	925.256
cash inflow	55505.66
cash outflow	55505.66
NPV	0

calculation of NPV
year	cash inflow	pvf @ 12%	present value of cash inflow
1	7000	0.8929	6250.000
2	7000	0.7972	5580.357
3	7000	0.7118	4982.462
4	7000	0.6355	4448.627
5	7000	0.5674	3971.988
6	7000	0.5066	3546.418
7	7000	0.4523	3166.445
8	7000	0.4039	2827.183
9	7000	0.3606	2524.270
10	7000	0.3220	2253.813
11	9500	0.2875	2731.023
12	9500	0.2567	2438.413
13	9500	0.2292	2177.155
14	9500	0.2046	1943.888
15	9500	0.1827	1735.614
16	9500	0.1631	1549.656
17	9500	0.1456	1383.621
18	9500	0.1300	1235.376
19	9500	0.1161	1103.014
20	9500	0.1037	984.834
cash inflow	56834.16
cash outflow	55505.66
NPV	1328.49