Question

NPV

A project has annual cash flows of $7,500 for the next 10 years and then $7,500 each year for the following 10 years. The IRR of this 20-year project is 10.02%. If the firm's WACC is 8%, what is the project's NPV? Round your answer to the nearest cent. Do not round your intermediate calculations.

Answer 1

Cash flows for 20 years = $7,500
IRR = 10.02%

Initial Investment = Present Value of Cash Flows at IRR
Initial Investment = $7,500/1.1002 + $7,500/1.1002^2 + … + $7,500/1.1002^19 + $7,500/1.1002^20
Initial Investment = $7,500 * (1 - (1/1.1002)^20) / 0.1002
Initial Investment = $7,500 * 8.50196
Initial Investment = $63,764.70

WACC = 8%

NPV = -$63,764.70 + $7,500/1.08 + $7,500/1.08^2 + … + $7,500/1.08^19 + $7,500/1.08^20
NPV = -$63,764.70 + $7,500 * (1 - (1/1.08)^20) / 0.08
NPV = -$63,764.70 + $7,500 * 9.81815
NPV = -$63,764.70 + $73,636.13
NPV = $9,871.43

NPV of the project is $9,871.43