Question

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

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