(NPV and IRR? calculation)??East Coast Television is considering a project with
ID: 2822718 • Letter: #
Question
(NPV and IRR? calculation)??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
?$50,000 a year at the end of each year for the next 15 years. The appropriate discount rate for this project is 10 percent.
If the project has an internal rate of return of 14 percent, what is the? project's net present? value? ?
If the project has an internal rate of return of14?%, then the? project's initial outlay is?
?
Explanation / Answer
At irr,present value of inflows=present value of outflows.
Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate
=$50000[1-(1.14)^-15]/0.14
=$50000*6.142167985
=$307108.40=inital outlay(Approx).
At 10%:
Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate
=$50000[1-(1.1)^-15]/0.1
=$50000*7.606079506
=$380303.98
NPV=Present value of inflows-Present value of outflows
=$380303.98-$307108.40
=$73195.58(Approx).
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