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arks Window Help courses.aplia.com TLs For Sale Near Brooklyn, NY E new york for sale Taudi a5-craigslist Aa Aa Understanding the IRR and NPV The net present value (NPV) and internal rate of return (IRR) methods of investment analysis are interrelated and are sometimes used together to make capital budgeting decisions. Consider the case of Blue Hamster Manufacturing Inc. when both its main Last Tuesday, Blue Hamster Manufacturing Inc. lost a portion of its planning and financial data and its backup servers crashed. is 14.6%, but he can't recall how much Blue Hamster originally invested in the project nor the project's net present value (NPV). However, he found a note that detailed the annual net cash flows expected to be generated by Project Zeta. They are: The company's CFO remembers that the internal rate of return (IRR) of Project Zeta Year Cash Flow Year 1 $2,200,000 Year 2 $4,125,000 Year 3 $4,125,000 Year 4 $4,125,000 The CFO has asked you to compute Project Zeta's initial investment using the information currently available to you. He has offered the following suggestions and observations: . A project's IRR represents the return the project would generate when its NPV is zero or the discounted value of its cash inflows equals the discounted value of its cash outflows-when the cash flows are discounted using the project's IRR The level of risk exhibited by Project Zeta is the same as that exhibited by the company's average project, which means that Project Zeta's net cash flows can be discounted using Blue Hamster's 7% wAcc. Given the data and hints, Project Zeta's initial investment is (rounded to the nearest whole dollar). , and its NPV is $10,346,84 $10,192,963 $10,651,535 $11,872,718 A project's IRR will if the project's cash inmows decrease, and everything else is unaffected.

Explanation / Answer

Calculate the initial investment in the project as follows:-

At IRR :-

Calculation of Net Present Value :-

2) A Project's IRR will Decrease if the project's cash inflows Decrease and Everything else is unaffected.

Year Cash Flow PVF @ 14.6% PV of Cash Flows 1 $2200000 0.8726 1919720 2 $4125000 0.7614 3140775 3 $4125000 0.6644 2740650 4 $4125000 0.5797 2391263 Intitial Cash Flow 10192408

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