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Calculating IRR and NPV using excel

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1) What is the internal rate of return (IRR) for a project whose intitial after tax cost is $5,000,000 and it is expected to provide after tax operating cash flows of ($1,800,000) in year 1, $2,900,000 in year 2, $2,700,000 in year 3, and $2,300,000 in year 4 ?

2) A firm is evaluating a proposal that has an initial investment of $50,000 and has cash flows of $15,000 per year for 5 years. If the firms required return or cost is 15%, should it accept the project using the internal rate of return (IRR) as a decision criteria ?

3) What is the net present value (NPV) for a project whose cost of capital is 12% and its initial after tax cost is $5,000,000 and it is expected to provide after tax operating cash flows of $1,800,000 in year 1, $1,900,000 in year 2, $1,700,000 in year 3, and ($1,300,000) in year 4 ?

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Solution Preview

1) The IRR is the rate at which the present value of cash inflows = present value of cash outflows and so the NPV is zero. The IRR denotes the return that the project gives on the initial investment. We calculate IRR manually using trial and error or using the IRR ...

Solution Summary

The solutions explains about IRR and NPV calculations and shows how to calculate NPV and IRR using excel

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