Question

6. A project with an initial cost of $58,050 is expected to generate annual cash flows of $15,480 for the next 7 years. What is the project's internal rate of return?

9. Rossdale Flowers has a new greenhouse project with an initial cost of $365,000 that is expected to generate cash flows of $48,600 for 10 years and a cash flow of $64,000 in Year 11. If the required return is 8.4 percent, what is the project's NPV?

Answer 1

6. Internal rate of return is calculated using a financial calculator by inputting the below:

• Press the CF button.
• CF0= -$58,050. It is entered with a negative sign since it is a cash outflow.
• Cash flow for each year should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow cash flow, press the IRR and CPT button to get the IRR of the project.

The IRR of the project is 18.58%.

9. Net present value is solved using a financial calculator. The steps to solve on the financial calculator:

• Press the CF button.
• CF0= -$365,000. It is entered with a negative sign since it is a cash outflow.
• Cash flow for all the years should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow, press the NPV button and enter the required retuen of 8.5%.
• Press the down arrow and CPT buttons to get the net present value.

Net present value of cash flows at 11.9% discount rate is -$18,338.06.

In case of any query, kindly comment on the solution.