East Coast Television is considering a project with an initial outlay of $X (you

Question

East Coast Television is considering a project with an initial outlay of $X (you will have to determine this amount). It is expected that the project will produce a positive cash flow of $53,000 a year at the end of each year for the next 14 years. The appropriate discount rate for this project is 8 percent. If the project has an internal rate of return of 10 percent, what is the project's net present value? a. If the project has an internal rate of return of 10%, then the project's initial outlay is $ ? (round to the nearest cent)

Explanation / Answer

Compute the Initial outlay by taking discount as IRR10%. Year Cash Inflow Discount @IRR10% Present value of inflows 1 1 53000 0.91 48181.82 2 53000 0.83 43801.65 3 53000 0.75 39819.68 4 53000 0.68 36199.71 5 53000 0.62 32908.83 6 53000 0.56 29917.12 7 53000 0.51 27197.38 8 53000 0.47 24724.89 9 53000 0.42 22477.17 10 53000 0.39 20433.79 11 53000 0.35 18576.18 12 53000 0.32 16887.43 13 53000 0.29 15352.21 14 53000 0.26 13956.56 Initial Outlay 390434.44 Compute the net present value by taking discount factor as 8% Year Cash flows Discount @8% Present value of cash flows 0 -390434.44 1 -390434.44 1 53000 0.93 49074.07 2 53000 0.86 45438.96 3 53000 0.79 42073.11 4 53000 0.74 38956.58 5 53000 0.68 36070.91 6 53000 0.63 33398.99 7 53000 0.58 30924.99 8 53000 0.54 28634.25 9 53000 0.50 26513.20 10 53000 0.46 24549.25 11 53000 0.43 22730.79 12 53000 0.40 21047.03 13 53000 0.37 19487.99 14 53000 0.34 18044.44 Net Present Value 46510.12

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