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    NPV and IRR

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    NPV and IRR. A project that costs $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?

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    Solution Preview

    Initial cost= $3,000
    We need to find the present value of annuity of $800

    n= 6
    r= 10.00%
    PVIFA (6 periods, 10.% rate ) = 4.355261
    Annuity= $800
    Therefore PV= $3,484 =4.355261 x $800

    (PVIFA= Present Value Interest Factor for an ...

    Solution Summary

    Calculates NPV of the project at the given discount rate and the discount rate at which the project is rejected.

    $2.19

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