Question

You have been asked to evaluate the following project: Your insurance company will receive cash flows...

You have been asked to evaluate the following project: Your insurance company will receive cash flows of $2.5 million/year for 5 years. In return, you will make a payment of $16 million in 9 years.

a. What is the IRR of this project?

b. Assuming an 8% discount rate, does the IRR rule tell you to accept or reject this project?

c. What is the NPV of this investment?

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Answer #1

a) IRR is the rate at which NPV = 0.

IRR is found using excel function with cash flows as the input.

IRR = 4.17%

b. IRR rule tells us that we should not accept this project because IRR < 8%

c. NPV = $1,977,791.62

Can you please upvote? Thank you :-)

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