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14 October, 01:43

Using the following dа ta:

• Initial Investment = $10,000,000

• Cash Inflow - Year 1 = $3,000,000

• Cash Inflow - Year 2 = $3,500,000

• Cash Inflow - Year 3 = $4,000,000

• Cash Inflow - Year 4 = $4,900,000

• Cash Inflow - Year 5 = $5,000,000

Required:

a. Calculate Internal Rate of Return

b. Calculate Net Present Value (assuming a required return of 8%)

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Answers (1)
  1. 14 October, 03:57
    0
    The answer is

    A. 26.46%

    B. $5,958,354.88

    Explanation:

    A.

    IRR = CFo / (1 + IRR) ^0 + CF1 / (1 + IRR) ^1 + CF2 / (1 + IRR) ^2 + CF3 / (1 + IRR) ^3 + CF4 / (1 + IRR) ^4 + CF5 / (1 + IRR) ^5

    CFo = - $10,000,000

    CF1 = $3,000,000

    CF2 = $3,500,000

    CF3 = $4,000,000

    CF4 = $4,900,000

    CF5 = $5,000,000

    Using a financial calculator;

    IRR = 26.46%

    B.

    NPV = - CFo + CF1 / (1 + r) ^1 + CF2 / (1 + r) ^2 + CF3 / (1 + r) ^3 + CF4 / (1 + r) ^4 + CF5 / (1 + r) ^5

    CFo = - $10,000,000

    CF1 = $3,000,000

    CF2 = $3,500,000

    CF3 = $4,000,000

    CF4 = $4,900,000

    CF5 = $5,000,000

    Using a financial calculator;

    NPV = $5,958,354.88
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