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Window Help Chrome File Edit View History Bookmarks People Window Help index.html?mbld-325046&nbNodeld-106857051;&deploymentid; 473802859548454 ng.cengage MindTap Assignment 11- The Basiles of Capital Budgeting Jac Due Today at 11-59 PM CDT 3. Understanding the IRR and NPV Aa Aa interrelated The net present value (NPV) and internal rate of return (IRR) methods of investment analysis are are sometimes used together to make capital budgeting decisions of return (IRR) methods of investment analysis are interrelated and Consider this case: Tuesday, Cute Camel Woodcraft Company lost a portion of its planning and financial data when its server and its 13.2%, but he can't recall how much Cute Camel originally They are: Last backup server crashed. The company's CFO remembers that the internal rate of return (IRR) of Project Delta is (NPV). However, he found a note that contained the annual net cash flows expected to be generated by Project Delta. invested in the project nor the project's net present value Year Cash Flow Year 1 $2,400,000 Year 2 $4,500,000 Year 3 $4,500,000 Year 4 $4,500,000 The CFO has asked you to compute Project Delta's initial investment using the information currently available to you. He has offered the following suggestions and observations A project's IRR represents the return the project would generate when its NPV is zero or the discounted value of its cash inflows equals the discounted value of its cash outflows-when the 8 Lr

Explanation / Answer

Since the Project IRR is 13.2%. For the calculation of Net Investment we have to present the cash flow @13.2%.

So, Net Investment = 2,400,000/1.132 + 4,500,000/1.132^2 + 4,500,000/1.132^3 + 4,500,000/1.132^4

Net Investment = $11,474,565.20

NPV @7% :

-11,474,565.20 + 2,400,000/1.07 + 4,500,000/1.07^2 + 4,500,000/1.07^3 + 4,500,000/1.07^4

NPV = $1,805,268.63

Given the data and hints, Project Delta’s initial investment is $11,474,565 and its NPV is $1,805,269.

A project’s IRR will increase if the project’s cash inflow increase, and everything else is unaffected.

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