Growth Enterprises believes its latest project, which will cost $86,000 to insta

Question

Growth Enterprises believes its latest project, which will cost $86,000 to install, will generate a perpetual growing stream of cash flows. Cash flow at the end of the first year will be $4,000, and cash flows in future years are expected to grow indefinitely at an annual rate of 6%.

If the discount rate for this project is 10%, what is the project NPV? (Do not round intermediate calculations.)

What is the project IRR? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

If the discount rate for this project is 10%, what is the project NPV? (Do not round intermediate calculations.)

Explanation / Answer

NPV =Present value of cash inflows - Present value of cash outflows

Present value of cash inflows = 4000/10%-6% i.e 100000

NPV = 100000-86000 i.e 14000

2) Calculation of IRR

NPV at discount rate of 11% = 80000-86000 i.e -6000

IRR =10% + 0.70% i.e 10.70%

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