Question

Intro You've estimated the following cash flows (in $) for a project: A B 1 Year...

Intro
You've estimated the following cash flows (in $) for a project:

A B
1 Year Cash flow
2 0 -3,200
3 1 974
4 2 1,281
5 3 1,647
The required return is 8.5%.
Attempt 1/1 for 10 pts.
Part 1
What is the IRR for the project?

Submit
Attempt 1/1 for 10 pts.
Part 2
What is the NPV of the project?

Submit
Attempt 1/1 for 10 pts.
Part 3
What should you do?
Check all that apply:
Accept the project based on its NPV
Reject the project based on its NPV
Accept the project based on its IRR
Reject the project based on its IRR

Homework Answers

Answer #1

Part I : Calculation of IRR

Year Cashflows PV@ 10% NPV PV@ 9% NPV

0 -3200 1 -3200 1 -3200

1 974 .909 885.366 .917 893.158

2 1281 .826 1058.106 .842 1078.602

3 1647 .751 1236.897 .772 1271.484

-19.631 43.244

IRR = Lower Rate(LR) + NPV at LR (Differences in rates)

NPV at LR- NPV at HR

= 9% + 43.244(1%) =9.688%

43.244-(-19.631)

Part 2: Calculation of NPV at required rate of 8.5%

Year Cashflows PV@ 8.5% NPV

0 -3200 1 -3200

1 974 .922 898.028   

2 1281 .85 1088.85

3 1647 .783 1289.601

NPV of the project 76.479

Part 3 : Accept the project based on the NPV at the required rate of return

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