Question

NPV

A project has annual cash flows of $7,500 for the next 10 years and then $11,000 each year for the following 10 years. The IRR of this 20-year project is 11.71%. If the firm's WACC is 10%, what is the project's NPV? Round your answer to the nearest cent. Do not round your intermediate calculations.

Answer 1

STEP 1. Calculation of Initial Cash outlay.

It has given that IRR is 11.71%. At IRR , PV of cash flows will be equals to Initial cash outlay.

So we can establish the following,

[7500*[email protected],Years 1 to 10] + [11,000*[email protected]%,Year11to 20] – Initial investment = 0

[7500*5.72] + [11,000*1.89]- Initial investment=0

42,900+20,790-Investment=0

So Initial investment =$63,690

STEP 2.Calculation of NPV @10% WACC Rate

NPV=[7500*PVAF@10%,Year 1to10] + [11,000*PVAF@10%,Year11to20] -63,690

=[7500*6.14]+[11,000*2.37]-63690

=46,050+26,070-63,690

=$8,430