Question

The IRR of a project is 12.2%. What is the NPV of the project’s cash flows, discounted at 12.2%?

Do not round intermediate calculations. Round your answer to the nearest cent

Answer 1

Let us discuss about both the terms.

Internal rate of return(IRR) -Internal rate of return is the discount rate that equated the present value of cash inflows with the present value of cash outflows

Net present value ( NPV) - Net present value is a capital budgeting technique that brings all the net cash flows to the present value at a particular discount rate

It is nothing but the Present value of cash inflows - present value of cash outflows

When the NPV is positive we need to accept the project as it will generate value to share hodlers . When the NPV is negative we need to reject the project as it will reduce the share holders value.

We have already discussed that the Present value of cash inflow is equal to present value of cash out flow when discounted at IRR

In the given question IRR = Discount rate for calculating NPV

Hence the NPV that is discounted at IRR will be ZERO