DeBarry Corporation makes an investment of $50,000 that yields the following cash flows:
Year Cash Flow
1 $10,000
2 10,000
3 16,000
4 18,000
5 20,000
a. What is the present value with a 9 percent discount rate (cost of capital)? (Use a Financial calculator to arrive at the answers. Round the final answer to the nearest whole dollar.)
Net present value $
b. What is the IRR? (Round the final answer to 2 decimal places.)
IRR %
c. Would you make the same decision under both parts a and b? Yes No
Solution
a) 5696.33
b) 12.76%
c) Yes, since NPV is positive and IRR is greater than discount rate
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