1. Using the Discounted Cash Flow template found in our Blackboard Classroom, or
ID: 2484487 • Letter: 1
Question
1. Using the Discounted Cash Flow template found in our Blackboard Classroom, or any other method you would like, calculate the internal rate of return for a project that has these annual inflows and outflows: Using a discount rate of 6%, what is the Net Present Value of these cash flows? Year 0 (the present) Year 1 Year 2 Year 3 Year 4 Year 5 Inflows $ 0 $2,000 $3,000 $4,000 $5,000 $6,000 Outflows $ 10,000 $ 500 $ 600 $ 700 $ 800 $ 900 The Internal Rate of Return is: _______________ The Net Present Value of these cash flows at 6% is : ______________
Explanation / Answer
Solution:
NPV Calculation 0 1 2 3 4 5 Outflows 10,000 500 600 700 800 900 PVIF @ 6% 1 0.943 0.890 0.840 0.792 0.747 Present value of cash outflows 10,000.00 471.70 534.00 587.73 633.67 672.53 Total present value of cash outflows 12,899.64 Cash inflow 0 2,000 3,000 4,000 5,000 6,000 PVIF @ 6% 1 0.943 0.890 0.840 0.792 0.747 Present value of cash inflows 1,886.79 2,669.99 3,358.48 3,960.47 4,483.55 Total present value of cash inflows 16,359.28 NPV = Total present value of cash inflows - Total present value of cash outflows 3,459.64 IRR Calculation 0 1 2 3 4 5 Outflows 10,000 500 600 700 800 900 PVIF @ 18% 1 0.847 0.718 0.609 0.516 0.437 Present value of cash outflows 10,000.00 423.73 430.91 426.04 412.63 393.40 Total present value of cash outflows 12,086.71 Cash inflow 0 2,000 3,000 4,000 5,000 6,000 PVIF @ 18% 1 0.847 0.718 0.609 0.516 0.437 Present value of cash inflows 1,694.92 2,154.55 2,434.52 2,578.94 2,622.66 Total present value of cash inflows 11,485.59 NPV = Total present value of cash inflows - Total present value of cash outflows - 601.12 IRR = 6 % + ( 3,459.64 / ( 3,459.64 - ( -601.12)) * 12% = 16.22 %Related Questions
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