Question

Your factory has been offered a contract to produce a part for a new printer. The contract would last for three​ years, and your cash flows from the contract would be $ 4.97 million per year. Your upfront setup costs to be ready to produce the part would be $ 7.92 million. Your discount rate for this contract is 7.7 %. a. What is the​ IRR? b. The NPV is $ 4.96 ​million, which is positive so the NPV rule says to accept the project. Does the IRR rule agree with the NPV​ rule? a. What is the​ IRR? The IRR is nothing​%. ​ (Round to two decimal​ places.)

Answer 1

a) IRR is calculated using the RATE function:-

=RATE(nper,pmt,pv)

=RATE(3,-4.97,7.92)

=39.77%

b) NPV:-

=PV(rate,nper,pmt)

=PV(7.7%,3,-4.97)-7.92

=4.96

c) Yes, IRR and NPV agree