A project has the following cash flows: Year Cash Flow 0 $38,500 1 -17,500 2 -28

Question

A project has the following cash flows:

Year Cash Flow

0           $38,500

1           -17,500

2          -28,500

What is the IRR for this project? (Round your answer to 2 decimal places. (e.g., 32.16)) IRR %

What is the NPV of this project, if the required return is 10 percent? (Negative amount should be indicated by a minus sign. Do not round intermediate answers and round your final answer to 2 decimal places. (e.g., 32.16))

What is the NPV of the project if the required return is 0 percent? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations.)

What is the NPV of the project if the required return is 20 percent? (Do not round intermediate answers and round your final answer to 2 decimal places. (e.g., 32.16)

Explanation / Answer

What is the IRR for this project?

At IRR, NPV =0

NPV = Year 0 Cash Flow + Year 1 Cash Flow/(1+r) + Year 2 Cash Flow//(1+r)^2

0 = 38500 - 17500/(1+r) - 28500/(1+r)^2

By solving above equation we get

IRR = 11.72%

What is the NPV of this project, if the required return is 10 percent?

NPV = Year 0 Cash Flow + Year 1 Cash Flow/(1+r) + Year 2 Cash Flow//(1+r)^2

NPV = 38500 - 17500/(1+10%) - 28500/(1+10%)^2

NPV = -962.81

What is the NPV of the project if the required return is 0 percent?

NPV = Year 0 Cash Flow + Year 1 Cash Flow/(1+r) + Year 2 Cash Flow//(1+r)^2

NPV = 38500 - 17500/(1+0%) - 28500/(1+0%)^2

NPV = -7500

What is the NPV of the project if the required return is 20 percent?

NPV = Year 0 Cash Flow + Year 1 Cash Flow/(1+r) + Year 2 Cash Flow//(1+r)^2

NPV = 38500 - 17500/(1+20%) - 28500/(1+20%)^2

NPV = 4125

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