A project has annual cash flows of 6000 for the next 10 year

A project has annual cash flows of $6,000 for the next 10 years and then $5,000 each year for the following 10 years. The IRR of this 20-year project is 10.31%. If the firm\'s WACC is 8%, what is the project\'s NPV? Round your answer to the nearest cent. Do not round your intermediate calculations.

Solution

IRR = 10.31%(given)

At IRR,

PV of Cash Outflows = PV of cash Inflows

= $6,000/1.1031¹ + $6,000/1.1031² + ............... + $6,000/1.1031¹⁰ + $5,000/1.1031¹¹ + .... +$5,000/1.1031²⁰

= $47,746

Hence, Value of Cash Outflows = $47,746

Please Enter the following values in the financial calculator,

CF0 = -$47,746; C01 = $6,000; F01 = 10; C02 = $5,000; F02 = 10;

Press NPV, then put, i = 8% press down key, then CPT, which gives,

NPV = $8,054.82