Question

A project has the following cash flows:

  

Year	Cash Flow
0	$64,200
1	–30,200
2	–48,200

   

Required:
(a)	What is the IRR for this project?
	(Click to select)13.97%12.77%13.3%13.03%13.57%

   

(b)	What is the NPV of this project, if the required return is 11 percent?
	(Click to select)$-2,169.96$-2,042.31$2,127.41$-2,127.41$-2,233.78

   

(c)	NPV at 0 percent?
	(Click to select)$-14,910.00$-14,200.00$-14,484.00$14,200.00$-13,632.00

   

(d)	NPV at 22 percent?
	(Click to select)$7,203.38$-7,062.13$6,779.65$7,062.13$7,415.24

Answer 1

a)

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

NPV = 64,200 + -30,200 / ( 1 + R)¹ + -48,200 / ( 1 + R)²

Using trial and error method, let's try R as 13.03%

NPV = 64,200 + -30,200 / ( 1 + 0.1303)¹ + -48,200 / ( 1 + 0.1303)²

NPV = 0

Therefore IRR is 13.03%

b)

NPV = 64,200 + -30,200 / ( 1 + 0.11)¹ + -48,200 / ( 1 + 0.11)²

NPV = $-2,127.41

c)

NPV = 64,200 + -30,200 / ( 1 + 0)¹ + -48,200 / ( 1 + 0)²

NPV = $-14,200.00

d)

NPV = 64,200 + -30,200 / ( 1 + 0.22)¹ + -48,200 / ( 1 + 0.22)²

NPV = $7,062.13