work, part 2- Graded AM CDT Assignment Score: 79.8 Submit Assignment for Grading
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work, part 2- Graded AM CDT Assignment Score: 79.8 Submit Assignment for Grading e Question 7 of Chapter 11 Homework, part 2 Graded Save Check My Work Click here to read the eBook: Net Present Value (NPV) Click here to read the eBook: Internal Rate of Return (IRR) NPV A project has annual cash flows of $6,500 for the next 10 years and then $5,000 each year for the following 10 years. The IRR of this 20-year project is 9.6%. If the firm's WACC is 9%, what is the project's NPV? Round your answer to the nearest cent. Do not round your intermediate caiculations. $55269.21 Incorrect Check My Work Question 7 of 7Explanation / Answer
Net Present Value [NPV] = $2,135.48
Net Present Value [NPV] = Present Value of Annual cash flows – Initial Investment
The question has given he Internal Rate of Return[IRR], IRR is the rate at which the present value of the annual cash flow equals to the initial Investment or it can say that at IRR, the present value of the annual cash flow = Initial Investment, or at IRR, NPV will be Zero
First Step, Calculate the Initial Investment at 9.6%
Initial Investment = $6,500[ PVIFA 9.6%, 1-10 Years] + $5,000[PVIFA 9.6%, 11-20 Years ]
= [ $6,500 x 6.251587836 ] + [ $5,000 x 2.499682191]
= $ 40635.32 + 12498.41
= $53,133.73
Second Step, Calculate the Present Value of cash flow at 9%
= $6,500[ PVIFA 9, 1-10 Years] + $5,000[PVIFA 9%, 11-20 Years ]
= [ $6,500 x 6.4176577] + [ $5,000 x 2.7108880]
= $41714.78 + 13554.44
= $55,269.21
Therefore, Net Present Value [NPV] = $55,269.21 - $53,133.73 = $2,135.48
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