INTERNAL RATE RETURNS & NPV
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NPV and IRR Aproject thatcosts $3,000 to install will provide annual cash flows of $800 for each of the next 6 years. Is this project worth pursuing, if the discount rate is 10 percent? How high can the discount rate be before you would reject the project?
The answer is below:
YEAR CASH FLOW DISCOUNT [email protected]% DISCOUNTED CAS FLOW
0 (3,000) 1 -3,000=3000*1
1 800 0.909091 727=800*1
2 800 0.826446 661=600*0.826446
3 800 0.751315 601=800*0.751315
4 800 0.683013 546=800*0.683013
5 800 0.620921 497=800*0.620921
6 800 0.564474 452=800*0.564474
NPV= 484
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Solution Preview
The formula of computing Present Value is:
PV = CF / (1+r)^n
where CF is the cash flow,
r is discount rate,
n is number of years
"^" is "to the ...
Solution Summary
INTERNAL RATE RETURNS & NPV are determined.
$2.49