NPV and IRR Benson Designs has prepared the following estimates for a long-term
ID: 2618527 • Letter: N
Question
NPV and IRR Benson Designs has prepared the following estimates for a long-term project it is considering. The initial investment is $56,110, and the project is expected to yield after-tax cash inflows of $9,000 per year for 10 years The firm has a cost of capital of 13%. a. Determine the net present value (NPV) for the project b. Determine the internal rate of return (IRR) for the project c. Would you recommend that the firm accept or reject the project? a. The NPV of the project is s (Round to the nearest cent) b. The IRR of the project is c.Would you recommend that the firm accept the project? (Select the best answer below) | %. (Round to two decimal places ) O Yes O No Click to select your answer(s).Explanation / Answer
a. NPV = Present Value of Cash Inflows - Present Value of Cash Outlfows
= [ $ 9,000 * 1/(1.13) ^ 1 +$ 9,000 * 1/(1.13) ^ 2 +$ 9,000 * 1/(1.13) ^ 3+ $ 9,000 * 1/(1.13) ^ 4 +....+$ 9,000 * 1/(1.13) ^ 10] - $ 56,110
= $ 48,836.19 - $56,110
= - $ 7,273.81
Hence, the correct answer is - $ 7,273.81
b.
Let the IRR be x.
Now , Present Value of Cash Outflows=Present Value of Cash Inflows
56,110 = 9,000/(1.0x) + 9,000/ (1.0x)^2 + 9,000/ (1.0x)^3+…..+ 9,000/ (1.0x)^10
Or x= 9.663%
Hence the IRR is 9.66%
c. The correct answer is No.
Since the NPV is negative, the project must not be accepted.
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