Question

A project has annual cash flows of $3,500 for the next 10 years and then $11,000 each year for the following 10 years. The IRR of this 20-year project is 13.58%. If the firm's WACC is 12%, what is the project's NPV? Round your answer to the nearest cent. Do not round your intermediate calculations.

Answer 1

Hello Sir/ Mam

YOUR REQUIRED ANSWER IS $4,901.74

We know that at if we discount cashflows using IRR, NPV equals 0, which means PVCI=PVCO

Hence,

Time	Cashflow	PVF	PV
1	$3,500.00	0.88044	$3,081.53
2	$3,500.00	0.77517	$2,713.09
3	$3,500.00	0.68249	$2,388.70
4	$3,500.00	0.60089	$2,103.10
5	$3,500.00	0.52904	$1,851.65
6	$3,500.00	0.46579	$1,630.26
7	$3,500.00	0.41010	$1,435.34
8	$3,500.00	0.36106	$1,263.73
9	$3,500.00	0.31789	$1,112.63
10	$3,500.00	0.27989	$979.60
11	$11,000.00	0.24642	$2,710.64
12	$11,000.00	0.21696	$2,386.55
13	$11,000.00	0.19102	$2,101.21
14	$11,000.00	0.16818	$1,849.98
15	$11,000.00	0.14807	$1,628.79
16	$11,000.00	0.13037	$1,434.05
17	$11,000.00	0.11478	$1,262.59
18	$11,000.00	0.10106	$1,111.63
19	$11,000.00	0.08897	$978.72
20	$11,000.00	0.07834	$861.70
Total			$34,885.47

Hence, initial investment = $34,885.47

Now,

Time	Cashflow	PVF	PV
0	-$34,885.47	1.00000	-$34,885.47
1	$3,500.00	0.89286	$3,125.00
2	$3,500.00	0.79719	$2,790.18
3	$3,500.00	0.71178	$2,491.23
4	$3,500.00	0.63552	$2,224.31
5	$3,500.00	0.56743	$1,985.99
6	$3,500.00	0.50663	$1,773.21
7	$3,500.00	0.45235	$1,583.22
8	$3,500.00	0.40388	$1,413.59
9	$3,500.00	0.36061	$1,262.14
10	$3,500.00	0.32197	$1,126.91
11	$11,000.00	0.28748	$3,162.24
12	$11,000.00	0.25668	$2,823.43
13	$11,000.00	0.22917	$2,520.92
14	$11,000.00	0.20462	$2,250.82
15	$11,000.00	0.18270	$2,009.66
16	$11,000.00	0.16312	$1,794.34
17	$11,000.00	0.14564	$1,602.09
18	$11,000.00	0.13004	$1,430.44
19	$11,000.00	0.11611	$1,277.17
20	$11,000.00	0.10367	$1,140.33
Total			$4,901.74

I hope this solves your doubt.

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