Here are the cash flows for a project under consideration:

Here are the cash flows for a project under consideration:

C0				C1				C2
−$7,090				+$4,940				+$18,480

a. Calculate the project’s net present value for discount rates of 0, 50%, and 100%.


b. What is the IRR of the project?

 

Explanation
Some values below may show as rounded for display purposes, though unrounded numbers should be used for actual calculations.

a.
r = 0% ⇒
NPV = −$7,090 + 4,940 + 18,480 = $16,330

r = 50% ⇒

NPV =	−$7,090 +	$4,940	+	$18,480	= $4,417
		1.50		1.502

r = 100% ⇒

NPV =	−$7,090 +	$4,940	+	$18,480	= $0
		2.00		2.002

b.
IRR = 100%, the discount rate at which NPV = 0.

Calculator computations:
CF0 = −7,090
CO1 = 4,940, FO1 = 1
CO2 = 18,480, FO2 = 1

 

I = 0	I = 50	I = 100	CPT IRR = 100
NPV CPT = 15,750	NPV CPT = 4,250	NPV CPT = 0

Thank you!