O lezto mheducation.com/hm.tpx apter 8 Question 2 (of 10.00 points Problem 8-25

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O lezto mheducation.com/hm.tpx apter 8 Question 2 (of 10.00 points Problem 8-25 Calculating IRR [LO 3,4 A project has the following cash flows S 66,000 40,000 -33,200 What is the IRR for this project? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16) Internal rate of return What is the NPV of this project if the required return is 4 percent? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your ans Net present value What is the NPV of the project if the required return is O percent? (A negative answer should be indicated by a minus sign. Do not round Intermediate calculations and round your ans Net present value $ What is the NPV of the project if the required return is 22 percent? (A negative answer should be indicated by a minus sign, Do not round intermediate calculations and round your an Net present value $ References ype here to search

Explanation / Answer

1. IRR is the rate which makes NPV as nil.

Let IRR be "x" %. Thus 66,000 - 40,000/(1+x)^1 - 33,200/(1+x)^2 = 0

Solving the above equation we get x as 7.43%. Thus IRR = 7.43%

2. NPV @ 4%

Thus NPV = -3,156.80

3. NPV @ 22%

Thus NPV = 10,907.28

Year Cash flow 1+r PVIF PV 0 66,000.00 1.04 1.0000 66,000.00 1 -40,000.00 0.9615 -38,461.54 2 -33,200.00 0.9246 -30,695.27 NPV -3,156.80

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