In: Accounting
Calculate the NPV for a 3-year project with the following cash
flows and a required return of 15%:
CF0 = -$800,000 ATCF1 = $160,000 ATCF2 = $160,000 ATCF3 = $160,000
ATER = $600,000
Calculate the IRR for a 2-year project with the following cash
flows and a required return of 12%:
CFO = -$375,000 ATCF1 = $27,500 ATCF2 = -$134,800 ATER =
$596,000
ATER = After-Tax Equity Reversion
ATCF = After-Tac Cash Flow
Please show me how you answer the problem.
1 | Calculation of NPV: | ||||||||
A | B | A*B | |||||||
Year | Cash Flows | Discount Factor @ 15% | Present Value | ||||||
0 | -800000 | 1.00 | -8,00,000 | ||||||
1 | 160000 | 0.87 | 1,39,130 | ||||||
2 | 160000 | 0.76 | 1,20,983 | ||||||
3 | 160000 | 0.66 | 1,05,203 | ||||||
3 | 600000 | 0.66 | 3,94,510 | ||||||
Net Present Value | -40,174 | ||||||||
2 | |||||||||
A | B | A*B | |||||||
Year | Cash Flows | Discount Factor @ 8% | Present Value | Discount Factor @ 10% | Present Value | ||||
0 | -375000 | 1.00 | -3,75,000 | 1.00 | -3,75,000 | ||||
1 | 27500 | 0.93 | 25,463 | 0.91 | 25,000 | ||||
2 | -134800 | 0.86 | -1,15,569 | 0.83 | -1,11,405 | ||||
3 | 596000 | 0.79 | 4,73,124 | 0.75 | 4,47,784 | ||||
Net Present Value | 8,018 | Net Present Value | -13,621 | ||||||
IRR= | 8%+(8018/(8018+13621)*2% | ||||||||
8%+0.74% | |||||||||
8.74% | |||||||||
Required Rate of Return is 12% , But IRR is 8.74%, SO the project is unacceptable | |||||||||