Your company received an investment proposal which requires an initial investmen
ID: 1171747 • Letter: Y
Question
Your company received an investment proposal which requires an initial investment of $5,972,556 now. The project will last for 5 years. You also have the following information about this project:
a) If you receive the above cash flows at the end of each year, calculate the NPV using both spreadsheet method and excel NPV function, and clearly mention if you will invest in the project or not based on your result of NPV.
b) Compute the IRR of the above project using the IRR function in excel.
Year 1 2 3 4 5 CF 972,556 120,000 130,000 140,000 597,255 Discount Rate 5% 7% 8% 10% 10%Explanation / Answer
Answer a Calculation of NPV of the project Year Cash flow Discount Factor Present Values 0 -$5,972,556 1 -$5,972,556 1 $972,556 0.952381 $926,244 2 $120,000 0.873439 $104,813 3 $130,000 0.793832 $103,198 4 $140,000 0.683013 $95,622 5 $597,255 0.620921 $370,848 NPV -$4,371,831 As the NPV of the project is negative , we will not invest in the project. Answer b Calculation of IRR of the project Year Cash flow 0 -$5,972,556 1 $972,556 2 $120,000 3 $130,000 4 $140,000 5 $597,255 IRR of the project = -29.45%
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.