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 ?

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

Using a spreadsheet program like Excel, calculate the NPVandIRR of the following scenario:
Cost (Year 0): 10,000.
Year 1 Return: 3,000.
Year 2 Return: 3,000.
Year 3 Return: 5,000.
Discount Rate: 10%.

A firm is considering an investment in a new machine with a price of $2 million to replace its existing machine. The current machine has a book value of a $1 million and a market value of $9 million. The new machine is expected to have a four-year life, and the old machine has four years left in which it can be used. If the firm

4. The budget committee has received the following projects. They are mutually exclusive. The Company uses 10% as the rate of return.
Year Project A Project B
0 - 30,000 - 60,000
1 10,000

NPV Example
? Pharmaceutical plant costs $50MM today
? Net cash flows: (no benefit until year 2)
- Year 2: $9MM
- Year 3: $10MM
- Year 4: $11MM
? Assume a no-growth perpetuity after Year 4
? Risk adjusted cost of capita = 14%
? What is NPV?
Internal Rate of Return
? IRR is the break-even rate
? At what rate does the

A. Calculate the NPVandIRR for each project. The company's WACC is 10%.
b. Assume only one percent can be undertakeen. Which project would you recommend and why would you?

The expected cash flows are as follows
year Cash Flow
0 - $315,000.00
1 + $71,000.00
2 + $150,000.00
3 + $150,000.00
What is the project's internal rate of return and the NPV on the following discount rates?
0%
4%
8%
12%
If I hand plotted a chart where the discount rate is on

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 cal

Your division is considering two projects with the following net cash flows:
year Project A Project B
0 (25) (20)
1 5 10
2 10 9
3 17 6
a) What are the projects' NPVs,

Please help with the following problem:
Your company is considering investing in a new plant. The initial investment is $220 million, obtainable at the end of the plant's useful life in ten years. Your company uses straight line depreciation (seven years). The net income from the project is expected to be $28 million per y