Question

A project has annual cash flows of $4,500 for the next 10 years and then $5,500 each year for the following 10 years. The IRR of this 20-year project is 12.05%. If the firm's WACC is 11%, what is the project's NPV? Do not round intermediate calculations. Round your answer to the nearest cent.

$ ___

Answer 1

At IRR, Present Value of Cash Inflow will be equal to Initial Outlay

Present Value of Cash Outflow = Annual Cash Flow from year 1-10 * PVAF (1-10 year, 12.05%) + Annual Cash Flow from year 11-20 * PVAF (10-20 year, 12.05%)

= 4500 * 5.63867735197 + 5500 * 1.98094924377

= 36269.2689245

We use WACC to discount the Cash Flows for NPV Calculation.

Present Value of Cash Inflow = Annual Cash Flow from year 1-10 * PVAF (1-10 year, 11%) + Annual Cash Flow from year 11-20 * PVAF (10-20 year, 11%)

= 4500 * 5.88923201096 + 5500 * 2.07409610585

= 37,909.07

NPV = Present Value of Cash Inflow - Initial Outlay

= 37,909.07 - 36269.27

= $1639.8

NOTE: The answer to your question has been given below/above. If there is any query regarding the answer, please ask in the comment section. If you find the answer helpful, do upvote. Help us help you.