•You are looking at a new project and you have estimated the following cash flows: Year 0:...

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Finance

•You are looking at a new project and you have estimated thefollowing cash flows:
Year 0: CF = -$150,000
Year 1-2: CF = $80,000
Year 3-4: CF = $50,000
Year 5-6: CF = $30,000
Year 7: CF = -$180,000
Your cost of capital is 10%
Please calculate NPV and IRR, anddecide whether we should take this project?

Answer & Explanation Solved by verified expert

3.6 Ratings (574 Votes)

Project
Discount rate	10.000%
Year	0	1	2	3	4	5	6	7
Cash flow stream	-150000	80000	80000	50000	50000	30000	30000	-180000
Discounting factor	1.000	1.100	1.210	1.331	1.464	1.611	1.772	1.949
Discounted cash flows project	-150000.000	72727.273	66115.702	37565.740	34150.673	18627.640	16934.218	-92368.461
NPV = Sum of discounted cash flows
NPV Project =	3752.78
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor

IRR is the rate at which NPV =0
IRR	17.14%
Year	0	1	2	3	4	5	6	7
Cash flow stream	-150000.000	80000.000	80000.000	50000.000	50000.000	30000.000	30000.000	-180000.000
Discounting factor	1.000	1.171	1.372	1.607	1.883	2.205	2.583	3.026
Discounted cash flows project	-150000.000	68297.046	58306.081	31110.415	26559.368	13604.448	11614.295	-59491.653
NPV = Sum of discounted cash flows
NPV Project =	0.000
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor

IRR=	17.14%

Accept project as NPV is positive and IRR> cost of capital

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•You are looking at a new project and you have estimated thefollowing cash flows:Year 0: CF = -$150,000Year 1-2: CF = $80,000Year 3-4: CF = $50,000Year 5-6: CF = $30,000Year 7: CF = -$180,000Your cost of capital is 10%Please calculate NPV and IRR, anddecide whether we should take this project?