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CCC Inc is considering a new one year project with NPV of $10,000. Only one cash...

  1. CCC Inc is considering a new one year project with NPV of $10,000. Only one cash inflow occurs and it is $1 million in 1 year. What is the firm’s appropriate discount rate for the project? The firms internal rate of return is 15%.
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Answer #1

IRR is the rate at which NPV = 0

i.e. Present value of cash inflows = Present value of cash outflows

Hence, present value of cash outflows = 1,000,000/1.15

= $869,565.22

Let the appropriate discount rate be x

10,000 = 1,000,000/(1+x) - 869,565.22

Hence,x = 13.69%

i.e. discount rate = 13.69%

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