Question

Project “Lane” costs $52,125, its expected cash inflows are $11,000 per year for the first four...

Project “Lane” costs $52,125, its expected cash inflows are $11,000 per year for the first four years and $9,000 for the next four years. The project’s WACC is 10%. What is the project’s NPV? What is the project IRR?

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Answer #1

Answer :-

Year Cash Flows PVF@10% PV
0 -52125 1 -52125
1 11000 0.9090909 10000
2 11000 0.8264463 9090.909
3 11000 0.7513148 8264.463
4 11000 0.6830135 7513.148
5 9000 0.6209213 5588.292
6 9000 0.5644739 5080.265
7 9000 0.5131581 4618.423
8 9000 0.4665074 4198.566
NPV 2229.067

Answer (b) IRR = 11.349%

Year Cash Flows PVF@10% PV PVF@15% PV
0 -52125 1 -52125 1 -52125
1 11000 0.909091 10000 0.8695652 9565.217
2 11000 0.826446 9090.909 0.7561437 8317.58
3 11000 0.751315 8264.463 0.6575162 7232.679
4 11000 0.683013 7513.148 0.5717532 6289.286
5 9000 0.620921 5588.292 0.4971767 4474.591
6 9000 0.564474 5080.265 0.4323276 3890.948
7 9000 0.513158 4618.423 0.375937 3383.433
8 9000 0.466507 4198.566 0.3269018 2942.116
NPV 2229.067 -6029.15
IRR 10 + 2229.067/8258.216 * 5 11.349%
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