Calculate the NPV for a 3-year project with the following cash flows and a required return...

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.

Expert Solution



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

ekkarill92 answered 7 months ago

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