A project has the following cash flows: Year Cash Flow 0 $ 73,000 1 – 54,000 2 –

Question

A project has the following cash flows: Year Cash Flow 0 $ 73,000 1 – 54,000 2 – 27,600 Requirement 1: What is the IRR for this project? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).) Internal rate of return % Requirement 2: What is the NPV of this project if the required return is 5 percent? (Do not round intermediate calculations. Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places (e.g., 32.16).) Net present value $ Requirement 3: What is the NPV of the project if the required return is 0 percent? (Do not round intermediate calculations. Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places (e.g., 32.16).) Net present value $ Requirement 4: What is the NPV of the project if the required return is 24 percent? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g.,32.16).) Net present value $ This question has been posted twice and both sets of answers are incorrect.

Explanation / Answer

Cash Flow Year 0 $ 73,000 , Year 1 – 54,000 , Year 2 – 27,600

Req.1= Internal rate of return =

present value of cash inflow at discount rate 7% = 54000 * 0.935 + 27600 * 0.873 = 74584.80

present value of cash inflow at discount rate 8% = 54000 * 0.926 + 27600 * 0.857 = 73657.20

IRR = 7% + 74584.80 - 73000 / 74584.80 - 73657.20 * 1% = 8.71%

Req. 2 = NPV5% = -73000 + 0.952 * 54000 + 0.907 * 27600 = $3441.20

Req. 3 = NPV0% = -73000 + 1 * 54000 + 1 * 27600 = $8600

Req. 4 = NPV24% = -73000 + 0.806 * 54000 + 0.650 * 27600 = -$11536

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