Question

A project has annual cash flows of $6,000 for the next 10 years and then $7,000 each year for the following 10 years. The IRR of this 20-year project is 8.29%. If the firm's WACC is 8%, what is the project's NPV? Round your answer to the nearest cent. Do not round your intermediate calculations.

Answer 1

IRR is the rate at which NPV is zero

NPV = 0 = PV of future cash inflows - initial cost

PV of the first 10 years cash flows

N = 10

I/Y = 8.29

PMT = 6,000

FV = 0

CPT PV

PV = 39,739.13527317

PV of the next 10 years cash flows

N = 10

I/Y = 8.29

PMT = 7,000

FV = 0

CPT PV

PV = 46,362.32448536

PV today = 46,362.32448536/1.0829^10

PV today = $20,906.5159972505

PV of future cash inflows = 39,739.13527317 + 20,906.5159972505 = 60,645.6512704205

NPV = 0 = 60,645.6512704205 - Initial cost

Initial cost = 60,645.6512704205

NPV at WACC = 8%

PV of future cash inflows

N = 10

II/Y = 8

PMT = 6,000

FV = 0

CPT PV

PV = 40,260.48839365

PV of the second part

N = 10

I/Y = 8

PMT = 7,000

FV = 0

CPT PV

PV = 46,970.56979259

PV today = 46,970.56979259/1.08^10 = 21,756.4620595549

PV of future cash inflows = 40,260.48839365 + 21,756.4620595549 = 62,016.9504532049

NPV = 62,016.9504532049 - Initial cost

NPV = 62,016.9504532049 - 60,645.6512704205

NPV = $1,371.2991827844

Can you please upvote? Thank You :-)