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Look at the net present value (NPV) equation (11-1) in your text Fundamentals of Financial Management and the cash flow time line below the formula. In your own words, explain each term of the NPV equation. Explain how you would arrive at the discounted cash flows for each year represented within the time line. How does this calculation differ from the internal rate of return (IRR) equation (11-2)? How would you use NPV or IRR in your current or potential occupation?

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Solution Summary

Calculation and Explanation of the NPV and the IRR