Spam?! Sam, a Skin Care | 9. 1000 points Chapter #8 × anderson international lim

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Spam?! Sam, a Skin Care | 9. 1000 points Chapter #8 × anderson international limit · ezto mheducation.com/hm.t px Problem 8-30 NPV and IRR [LO 3, 4 Anderson International Limfod is evaluating a project in Erewhon The project will create the following cash flows $690,000 243,000 175,000 256,000 231,000 All cash flows will occur in Erewhon and are expressed in dollars In an attempt to improve its economy, the Erewhonian government has declared that all cash flows created by a foreign company are "blocked and must be reinvested with the government for one year. The reinvestment rate for these funds is 4 percent Assume Anderson uses a required return of 10 percent on this project Requirement 1: What is the NPV of the project? (Do not round intermediate calculations. Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places (e.g, 32.16)) Net present value 13385 56 Requirement 2: What is the IRR of the project? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16)) Internal rate of rean References Difficulty. 3 Challenge Leaming Objective: 08-04 Evaluate proposed in Worksheet Frnhlam 30 NPY and IRR34l Leaming Objective: 08-03 Explain the internal rate Section 84 The Internal Rate of Return

Explanation / Answer

Answer 1 Calculation of Project's NPV when required rate return on project is 10% Year Cash flow Discount Factor @ 10% Present Value 0 -$690,000 1 -$690,000.00 1 $243,000 0.9090909 $220,909.09 2 $175,000 0.8264463 $144,628.10 3 $256,000 0.7513148 $192,336.59 4 $231,000 0.6830135 $157,776.11 NPV $25,649.89 NPV of the project = $25,649.89 Answer 2 Calculation of Project's IRR At IRR , NPV of the project cash flows is equal to zero. Year Cash flow Discount Factor @ 11.6920% Present Value 0 -$690,000 1 -$690,000 1 $243,000 0.8953193 $217,563 2 $175,000 0.8015966 $140,279 3 $256,000 0.7176849 $183,727 4 $231,000 0.6425571 $148,431 NPV $0 IRR 11.69%

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