Simms Corp. is considering a project that has the following cash flow data. What
ID: 2736236 • Letter: S
Question
Simms Corp. is considering a project that has the following cash flow data. What is the project's IRR? Note that a project's IRR can be less than the WACC or negative, in both cases it will be rejected.Year 0. 1 2 3 Cash flows -1000 $425. $425. $425
Simms Corp. is considering a project that has the following cash flow data. What is the project's IRR? Note that a project's IRR can be less than the WACC or negative, in both cases it will be rejected.
Year 0. 1 2 3 Cash flows -1000 $425. $425. $425
Year 0. 1 2 3 Cash flows -1000 $425. $425. $425
Explanation / Answer
Cash outflows (1,000.00) Cash inflow per year for 3 Years 425.00 PVF for 3 Years = 1000/425 2.3529 IRR would be between 13 and 14% looking at below table Time PVF@9% PVF@10% PVF@11% PVF@12% PVF@13% PVF@14% 1 0.9174 0.9091 0.9009 0.8929 0.8850 0.8772 2 0.8417 0.8264 0.8116 0.7972 0.7831 0.7695 3 0.7722 0.7513 0.7312 0.7118 0.6931 0.6750 2.5313 2.4869 2.4437 2.4018 2.3612 2.3216 Statement showing Cash flows Particulars Time PVf@13% Amount PV Cash Outflows - 1.00 (1,000.00) (1,000.00) PV of Cash outflows = PVCO (1,000.00) Cash inflows 1-3 2.3612 425.00 1,003.49 PV of Cash Inflows =PVCI 1,003.49 NPV= PVCI - PVCO 3.49 Statement showing Cash flows Particulars Time PVf@14% Amount PV Cash Outflows - 1.00 (1,000.00) (1,000.00) PV of Cash outflows = PVCO (1,000.00) Cash inflows 1-3 2.3216 425.00 986.69 PV of Cash Inflows =PVCI 986.69 NPV= PVCI - PVCO (13.31) NPV @13% 3.49 NPV @14% (13.31) Diff @1% 16.80 IRR = 13%+ 3.49/16.80*1% = 13.21%
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