Calculate the NPV at 9% and the IRR for the following projects: An initial outlay of...

Calculate the NPV at 9% and the IRR for the following projects: An initial outlay of $69,724 and an inflow of 15,000 followed by four consecutive inflows of $17,000

Expert Solution

Year	Cashflow	PVF@9%	*CashflowPVF**
0	(69,724)	1	(69,724.00)
1	15,000	0.9174	13,761.47
2	17,000	0.8417	14,308.56
3	17,000	0.7722	13,127.12
4	17,000	0.7084	12,043.23
5	17,000	0.6499	11,048.83

NPV = Cashflow*PVF

= -5434.79

IRR is the rate at which NPV =0. IRR is calculated using trial and error method

Since NPV at 9% is negative take a lower rate say 8%.

Year	Cashflow	PVF@9%	*CashflowPVF**
0	(69,724)	1	(69,724.00)
1	15,000	0.9259	13,888.89
2	17,000	0.8573	14,574.76
3	17,000	0.7938	13,495.15
4	17,000	0.7350	12,495.51
5	17,000	0.6806	11,569.91

NPV = Cashflow*PVF

= -3699.78

IRR = R1+(NPV1*(R2-R1))/(NPV1-NPV2)

= 8+(-3699.78*(9-8))/(-3699.78+5434.79)

= 8+(-3699.78)/1735.01

= 5.87%

= 6%

jeff jeffy answered 1 year ago

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