The YayForWinterBreak Company wants to calculate the NPV and IRR on the followin

Question

The YayForWinterBreak Company wants to calculate the NPV and IRR on the following project: Cost is $25,000 today, with end-of-year cash flows of $12,000, $10,000, and $7,500, Years 1 through 3 respectively for three years. Assume the cost of capital is 8%. Show all work on the TI BAII Plus Calculator. A) NPV? B) IRR? The YayForWinterBreak Company wants to calculate the NPV and IRR on the following project: Cost is $25,000 today, with end-of-year cash flows of $12,000, $10,000, and $7,500, Years 1 through 3 respectively for three years. Assume the cost of capital is 8%. Show all work on the TI BAII Plus Calculator. A) NPV? B) IRR? The YayForWinterBreak Company wants to calculate the NPV and IRR on the following project: Cost is $25,000 today, with end-of-year cash flows of $12,000, $10,000, and $7,500, Years 1 through 3 respectively for three years. Assume the cost of capital is 8%. Show all work on the TI BAII Plus Calculator. A) NPV? B) IRR? A) NPV? B) IRR?

Explanation / Answer

IRR is the internal rate of return where the NPV becomes zero therefore at 8 % the NPV is positive will take 10 % and see the NPV therefore NPV at 10% ids negative see below:

Hence using interpolation the IRR is between 9-10% because at 9% the NPV is positive and for IRR the NPV should be zero .Hence it is 9.5%

Year Cash Discount factor @8% Net present value 0 -25000 1 -25000 1 12000 0.926 11111.11 2 10000 0.857 8573.39 3 7500 0.794 5953.74 Net present vaue 638.24

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