What is the NPV of the offer if the appropriate discount rate is 10 percent? (Ne

Question

What is the NPV of the offer if the appropriate discount rate is 10 percent? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))

What is the NPV of the offer if the appropriate discount rate is 20 percent? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))

Explanation / Answer

The IRR is the interest rate that makes the NPV of the project equal to zero. So, the equation

that defines the IRR for this project is:

0 = C0 + C1 / (1 + IRR) + C2 / (1 + IRR)^2 + C3 / (1 + IRR)^3 + C4 / (1 + IRR)^4

0 = $7,000

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