Question

In: Finance

•You are looking at a new project and you have estimated the following cash flows: Year...

•You are looking at a new project and you have estimated the following cash flows:

Year 0: CF = -$150,000

Year 1-2: CF = $80,000

Year 3-4: CF = $50,000

Year 5-6: CF = $30,000

Year 7: CF = -$180,000

Your cost of capital is 10%

Please calculate NPV and IRR, and decide whether we should take this project?

Solutions

Expert Solution

Project
Discount rate 10.000%
Year 0 1 2 3 4 5 6 7
Cash flow stream -150000 80000 80000 50000 50000 30000 30000 -180000
Discounting factor 1.000 1.100 1.210 1.331 1.464 1.611 1.772 1.949
Discounted cash flows project -150000.000 72727.273 66115.702 37565.740 34150.673 18627.640 16934.218 -92368.461
NPV = Sum of discounted cash flows
NPV Project = 3752.78
Where
Discounting factor = (1 + discount rate)^(Corresponding period in years)
Discounted Cashflow= Cash flow stream/discounting factor
IRR is the rate at which NPV =0
IRR 17.14%
Year 0 1 2 3 4 5 6 7
Cash flow stream -150000.000 80000.000 80000.000 50000.000 50000.000 30000.000 30000.000 -180000.000
Discounting factor 1.000 1.171 1.372 1.607 1.883 2.205 2.583 3.026
Discounted cash flows project -150000.000 68297.046 58306.081 31110.415 26559.368 13604.448 11614.295 -59491.653
NPV = Sum of discounted cash flows
NPV Project = 0.000
Where
Discounting factor = (1 + discount rate)^(Corresponding period in years)
Discounted Cashflow= Cash flow stream/discounting factor
IRR= 17.14%

Accept project as NPV is positive and IRR> cost of capital

jeff jeffy answered 2 years ago
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