At a required return of 10 percent, what is the NPV of the project? ( Do not rou

Question

At a required return of 10 percent, what is the NPV of the project? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

At a required return of 26 percent, what is the NPV of the project? (Do not round intermediate calculations. A negative amount should be indicated by a minus sign. Round your answer to 2 decimal places (e.g., 32.16).)

At what discount rate would you be indifferent between accepting the project and rejecting it? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)

%

What is the IRR of the above set of cash flows? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)

A project that provides annual cash flows of $2,250 for nine years costs $9,300 today.

Explanation / Answer

NPV is basically the difference between the sum of present value of all cash inflows which a project generates over the years and the initial investment (cash outflow) of a particular project.

Inital Investment = 9300

Annual Cash Flows :

Present Value of Cash flows @ 10% required rate of return

Total 12957.80

NPV = 12957.80 - 9300 = 3657.80

Present Value of Cash flows @ 26 % required rate of return

NPV = 7572.73 - 9300 = - 1727.27

NPV gets negative when the required rate of return goes up to 26%.

Internal Rate of Return is the rate which makes NPV=0.

Here, inital investment = 34000

Here, if we discount the above cash flows by 13.41%, NPV would be 0. Hence, the internal rate of return would be 13.41 %.

Year 1 2250 Year 2 2250 Year 3 2250 Year 4 2250 Year 5 2250 Year 6 2250 Year 7 2250 Year 8 2250 Year 9 2250

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