Question

 East Coast Television is considering a project with an initial outlay of​ $X (you will have...

 East Coast Television is considering a project with an initial outlay of​ $X (you will have to determine this​ amount). It is expected that the project will produce a positive cash flow of ​$43000 a year at the end of each year for the next 14 years. The appropriate discount rate for this project is 7 percent. If the project has an internal rate of return of 9 ​percent, what is the​ project's net present​ value? a.  If the project has an internal rate of return of 9​%, then the​ project's initial outlay is ​$

Homework Answers

Answer #1

IRR is the rate of return that makes initial investment equal to present value of cash inflows

Initial investment = annuity * [1 - 1 / (1 + r)n] /r

Initial investment = 43000 * [1 - 1 / (1 + 0.09)14] / 0.09

Initial investment = 43000 * [1 - 0.29925] / 0.09

Initial investment = 43000 * 7.78615

Initial investment = $334,804.4667

Project's initial outlay is $334,804.4667

NPV = Present value of cash inflows - present value of cash inflows

NPV = 43000 * [1 - 1 / (1 + 0.07)14] / 0.07 - 334,804.4667

NPV = 43000 * [1 - 0.38782] / 0.07 - 334,804.4667

NPV = 43000 * 8.74547 - 334,804.4667

NPV = $41,250.6567

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