Question

Suppose an investment costs $10,000 with expected cash flows of $3,000 for 5 years. the discount rate is 15.2382%. the npv is ___ and the irr is ___ for the project.

Answer 1

NPV= PV of cash flow – initial investment

= annual cash flow x PVIFA(n,R) – initial investment

= 3000 x PVIFA (5,15.2382%) – 10,000

= 3,000 x 3.33333 -10,000

= 0

So NPV is 0.

IRR is the discount rate at which NPV is zero. We are getting NPV zero at discount rate 15.2382% Therefore, IRR of this project would be 15.2382%.