Question

A project has annual cash flows of $4,500 for the next 10 years and then $5,500 each year for the following 10 years. The IRR of this 20-year project is 9.88%. If the firm's WACC is 8%, what is the project's NPV? Do not round intermediate calculations. Round your answer to the nearest cent.

Answer 1

At IRR, present value of cash inflows = Present value of cash outlfow

Year	Cash inflow	PVF @ 9.88%	Present value
1	4500	0.910083728	4095.38
2	4500	0.828252391	3727.14
3	4500	0.753779024	3392.01
4	4500	0.686002024	3087.01
5	4500	0.624319279	2809.44
6	4500	0.568182817	2556.82
7	4500	0.517093936	2326.92
8	4500	0.470598777	2117.69
9	4500	0.428284289	1927.28
10	4500	0.389774562	1753.99
11	5500	0.354727487	1951.00
12	5500	0.322831713	1775.57
13	5500	0.293803889	1615.92
14	5500	0.267386139	1470.62
15	5500	0.243343774	1338.39
16	5500	0.221463209	1218.05
17	5500	0.201550063	1108.53
18	5500	0.183427432	1008.85
19	5500	0.166934321	918.14
20	5500	0.151924209	835.58
		Present value of cash outflow	41034.33

Year	Cash inflow	PVF @ 8%	Present value
1	4500	0.925925926	4166.67
2	4500	0.85733882	3858.02
3	4500	0.793832241	3572.25
4	4500	0.735029853	3307.63
5	4500	0.680583197	3062.62
6	4500	0.630169627	2835.76
7	4500	0.583490395	2625.71
8	4500	0.540268885	2431.21
9	4500	0.500248967	2251.12
10	4500	0.463193488	2084.37
11	5500	0.428882859	2358.86
12	5500	0.397113759	2184.13
13	5500	0.367697925	2022.34
14	5500	0.340461041	1872.54
15	5500	0.315241705	1733.83
16	5500	0.291890468	1605.40
17	5500	0.270268951	1486.48
18	5500	0.250249029	1376.37
19	5500	0.231712064	1274.42
20	5500	0.214548207	1180.02
		Present value of cash inflow	47289.73

NPV = Present value of cash inflow - Present value of cash outflow = 47289.73 - 41034.33

6255.40