inbox (1) . sb664246@su e l m Project-FIN-200,005-201: Chapter #8 Anc O | ezto.m

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inbox (1) . sb664246@su e l m Project-FIN-200,005-201: Chapter #8 Anc O | ezto.mheducation.com/hm.tpx 9. 10.00 points Problem 8-30 NPV and IRR [LO 3, 4] Anderson International Limited is evaluating a project in Erewhon. The project will create the following cash lows Flow -$690 000 243,000 175,000 256,000 231,000 All cash fows will occur in Erewhon and are expressed in dollars In an attempt to improve its economy, the rewhonian government has declared that all cash flows created by a foreign company are "blocked and must be reinvested with the government for one year. The reinvestment rate for these funds is 4 percent Assume Anderson uses a required return of 10 percent on this project What is the NPV of the project? (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).) lietpresentvalue $ What is the IRR of the project? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g, 32.16)) Internal rate of re References Worksheet Difficulty: 3 Challenge Learning Ob Problem 8-30 NPV and IRR [LO 3, 4] Learming Objective 08-03 Explain the internal rate s

Explanation / Answer

CALCULATION OF PRESNT VALUE OF THE PROJECT Years Cash Flows PVF @ 10% Present Value 0 -$6,90,000 1 -$6,90,000.00 1 $2,43,000 0.9091 $2,20,909.09 2 $1,75,000 0.8264 $1,44,628.10 3 $2,56,000 0.7513 $1,92,336.59 4 $2,31,000 0.6830 $1,57,776.11 Net Present Value = $25,649.89 Answer = NPV of the project =               25,649.89 IRR : IRR Means with a particular Percentage rate , At that point the present value become the zero CALCULATION OF THE IRR OF THE PROJECT First we calculate randomly present value @ 11% discounting rate Years Cash Flows PVF @ 11% Present Value 0 -$6,90,000 1 -$6,90,000.00 1 $2,43,000 0.9009 $2,18,918.92 2 $1,75,000 0.8116 $1,42,033.93 3 $2,56,000 0.7312 $1,87,184.99 4 $2,31,000 0.6587 $1,52,166.86 Net Present Value = $10,304.69 With PVF of 11% we are getting positive =               10,304.69 Secondly we calculate randomly present value @ 12% discounting rate Years Cash Flows PVF @ 12% Present Value 0 -$6,90,000 1 -$6,90,000.00 1 $2,43,000 0.8929 $2,16,964.29 2 $1,75,000 0.7972 $1,39,508.93 3 $2,56,000 0.7118 $1,82,215.74 4 $2,31,000 0.6355 $1,46,804.68 Net Present Value = -$4,506.37 With PVF of 12% we are getting negative =               -4,506.37 In the given case the pv with 11% is coming to postive means the present value is more then 11% but with 12 % Present value cash flow become negative so the present value is between 11% and 12% So the differecne in both the net present value is = $10,304.69 - -$4,506.37 Total is become = $14,811.06 So , the difference % = $10,304.69 "/"By $14,811.06 So , the difference % = 0.70 So, the IRR = 11.70% Answer = IRR = 11.70%

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