Question

NPV and IRR Benson Designs has prepared the following estimates for a​ long-term project it is...

NPV and IRR Benson Designs has prepared the following estimates for a​ long-term project it is considering. The initial investment is $26,940, and the project is expected to yield​ after-tax cash inflows of $3,000 per year for 14 years. The firm has a cost of capital of 8%.

a.  Determine the net present value​ (NPV) for the project.

b.  Determine the internal rate of return​ (IRR) for the project.

c.  Would you recommend that the firm accept or reject the​ project?

Homework Answers

Answer #1

a)

Net present value = Present value of cash inflows - present value of cash outflows

net present value = Annuity * [1 - 1 / (1 + r)n] / r - Initial investment

net present value = 3,000 * [1 - 1 / (1 + 0.08)14] / 0.08 - 26,940

net present value = 3,000 * [1 - 0.34046] / 0.08 - 26,940

net present value = 3,000 * 8.24424 - 26,940

net present value = -2,207.29

b)

IRR is the rate of return that makes NPV equal to 0

net present value = 3,000 * [1 - 1 / (1 + R)14] / R - 26,940

Using trial and error method, i.e., after trying various values for R, let's try R as 6.56%

net present value = 3,000 * [1 - 1 / (1 + 0.0656)14] / 0.0656 - 26,940

net present value = 3,000 * 8.98098 - 26,940

net present value = 0

Therefore, IRR is 6.56%

3)

We would NOT recommend the project as it has negative NPV and IRR less than 8%

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
NPV and IRR    Benson Designs has prepared the following estimates for a​ long-term project it is...
NPV and IRR    Benson Designs has prepared the following estimates for a​ long-term project it is considering. The initial investment is ​$43,760​, and the project is expected to yield​ after-tax cash inflows of ​$7,000 per year for 10 years. The firm has a cost of capital of 14​%. a.  Determine the net present value​ (NPV) for the project. b.  Determine the internal rate of return​ (IRR) for the project. c.  Would you recommend that the firm accept or reject the​...
NPV and IRR???Benson Designs has prepared the following estimates for a? long-term project it is considering....
NPV and IRR???Benson Designs has prepared the following estimates for a? long-term project it is considering. The initial investment is ?$46,760?, and the project is expected to yield? after-tax cash inflows of ?$5,000 per year for 14 years. The firm has a cost of capital of 9?%. a.??Determine the net present value? (NPV) for the project. b.??Determine the internal rate of return? (IRR) for the project. c.??Would you recommend that the firm accept or reject the? project?
NPV and IRR   Benson Designs has prepared the following estimates for a​ long-term project it is...
NPV and IRR   Benson Designs has prepared the following estimates for a​ long-term project it is considering. The initial investment is ​$84 comma 600​, and the project is expected to yield​ after-tax cash inflows of ​$9 comma 000per year for 15years. The firm has a cost of capital of 13​%. a.  Determine the net present value​ (NPV) for the project. b.  Determine the internal rate of return​ (IRR) for the project. c.  Would you recommend that the firm accept or...
. (NPV,IRR)A company can invest $1,600,000 in a capital budgeting project that will generate the following...
. (NPV,IRR)A company can invest $1,600,000 in a capital budgeting project that will generate the following forecasted cash flows: Year Cash flow 1 $500,000 2 720,000 3 300,000 4 600,000 The company has a 13% cost of capital. a. Calculate the project’s net present value. b. Calculate the project’s internal rate of return. c. Should the firm accept or reject the project? d. What is the value added to the firm if it accepts this proposed investment?
Your firm is considering a project that has an NPV of $32,600, an IRR of 9.5...
Your firm is considering a project that has an NPV of $32,600, an IRR of 9.5 percent, and a payback period of 8.9 years. The required return is 9% and the required payback period is 9 years. Which one of the following statements correctly applies to this project? A) The net present value indicates accept while the internal rate of return indicates reject. B) The payback decision rule is sufficient in making the decision about the project. C) The payback...
Understanding the IRR and NPV The net present value (NPV) and internal rate of return (IRR)...
Understanding the IRR and NPV The net present value (NPV) and internal rate of return (IRR) methods of investment analysis are interrelated and are sometimes used together to make capital budgeting decisions. Consider the case of Blue Hamster Manufacturing Inc.: Last Tuesday, Blue Hamster Manufacturing Inc. lost a portion of its planning and financial data when both its main and its backup servers crashed. The company’s CFO remembers that the internal rate of return (IRR) of Project Delta is 11.3%,...
​Payback, NPV, and IRR: Rieger International is evaluating the feasibility of investing ​$96,000 in a piece...
​Payback, NPV, and IRR: Rieger International is evaluating the feasibility of investing ​$96,000 in a piece of equipment that has a 5​-year life. The firm has estimated the cash inflows associated with the proposal as shown in the following​ table: The firm has a 8% cost of capital. a.  Calculate the payback period for the proposed investment. b.  Calculate the net present value​ (NPV) for the proposed investment. c.  Calculate the internal rate of return ​(IRR)​, rounded to the nearest...
A company estimates that its required rate of return is 18 percent on its capital investments....
A company estimates that its required rate of return is 18 percent on its capital investments. It is considering the following independent projects. Select all that are true. Question 5 options: It should accept Project C, which requires an initial investment of $1,000,000 and generates an IRR of 19 percent. Project F, which has $439 NPV, must have an IRR that is higher than 18%. It should accept Project A, which requires an initial investment of $145,000 and has a...
2. A company is considering a project that has the following cash flows: C0 = -3,000,...
2. A company is considering a project that has the following cash flows: C0 = -3,000, C1 = +900, C2 = +500, C3 = +1,100, and C4 = +1,900, with a risk-adjusted discount rate of 8%. A) Calculate the Net Present Value (NPV), Internal Rate of Return (IRR), Modified Internal Rate of Return (MIRR), and Profitability Index (PI) of this project. B) If you were the manager of the firm, will you accept or reject the project based on the...
P12–19 Capital rationing: IRR and NPV approaches Valley Corporation is attempting to select the best of...
P12–19 Capital rationing: IRR and NPV approaches Valley Corporation is attempting to select the best of a group of independent projects competing for the firm’s fixed capital budget of $4.5 million. The firm recognizes that any unused portion of this budget will earn less than its 15% cost of capital, thereby resulting in a present value of inflows that is less than the initial investment. The firm has summarized, in the following table, the key data for selecting the best...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT