Question

The Hudson Corporation makes an investment of $24,000 that provides the following cash flow: Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods.Year Cash Flow

1 $ 13,000
2 13,000
3 4,000a. What is the net present value at an 8 percent discount rate? (Do not round intermediate calculations and round your answer to 2 decimal places.)b. What is the internal rate of return? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Answer 1

The net present value (NPV) at an 8 percent discount rate is $12,516.29. The internal rate of return (IRR) is 11.10%.

Step-by-step explanation:

To calculate the net present value (NPV) at an 8 percent discount rate, we need to find the present value of each cash flow and then sum them up. Using the formula method:

NPV = CF1 / (1+r)1 + CF2 / (1+r)2 + CF3 / (1+r)3

Substituting the values, we get:

NPV = 13000 / (1+0.08)1 + 13000 / (1+0.08)2 + 4000 / (1+0.08)3

Using a financial calculator, let's plug in the values:

CF0 = -24000, CF1 = 13000, CF2 = 13000, CF3 = 4000, I/Y = 8, and solve for NPV:

NPV = $12,516.29

To calculate the internal rate of return (IRR), we can use the financial calculator as well:

CF0 = -24000, CF1 = 13000, CF2 = 13000, CF3 = 4000, NPV = 0, and solve for I/Y:

IRR = 11.10%

Answer 2

NPV = $2,357.77

IRR = 14.31%

Step-by-step explanation:

Net present value is the present value of after tax cash flows from an investment less the amount invested.

Internal rate of return is the discount rate that equates the after tax cash flows from an investment to the amount invested.

NPV and IRR can be calculated using a financial calculator.

Cash flow in year 0 = $-24,000

Cash flow each year in year 1 and 2 = $13,000

Cash flow in year 3 = 4,000

I = 8%

NPV = $2,357.77

IRR = 14.31%

To find the NPV using a financial calacutor:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. After inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.

3. Press compute

To find the IRR using a financial calacutor:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. After inputting all the cash flows, press the IRR button and then press the compute button.

I hope my answer helps you