Question

# NPV A project has annual cash flows of \$6,000 for the next 10 years and then...

NPV A project has annual cash flows of \$6,000 for the next 10 years and then \$9,500 each year for the following 10 years. The IRR of this 20-year project is 12.14%. 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

Cash Flows:
Year 1-10 = \$6,000
Year 11-20 = \$9,500

IRR of project = 12.14%

Initial Investment = PV of Annual Cash Flows at IRR
Initial Investment = \$6,000/1.1214 + \$6,000/1.1214^2 + ... + \$6,000/1.1214^10 + \$9,500/1.1214^11 + \$9,500/1.1214^12 + ... + \$9,500/1.1214^20
Initial Investment = \$6,000*(1 - (1/1.1214)^10)/0.1214 + (\$9,500/1.1214^10)*(1 - (1/1.1214)^10)/0.1214
Initial Investment = \$50,678.61

WACC = 10%

NPV = -\$50,678.61 + \$6,000/1.10 + \$6,000/1.10^2 + ... + \$6,000/1.10^10 + \$9,500/1.10^11 + \$9,500/1.10^12 + ... + \$9,500/1.10^20
NPV = -\$50,678.61 + \$6,000*(1 - (1/1.10)^10)/0.10 + (\$9,500/1.10^10)*(1 - (1/1.10)^10)/0.10
NPV = \$8,694.26

So, NPV of this project is \$8,694.26

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