Calculate the NPV at 12% and the IRR for the following projects. Find IRRs to the nearest
Question:
a. An initial outflow of $5,000 followed by three inflows of $2,000.
b. An initial outflow of $5,000 followed by inflows of $1,000, $2,000, and $3,000.
c. An initial outflow of $5,000 followed by inflows of $3,000, $2,000, and $1,000.
d. Notice that in parts (a), (b), and (c), a total of $6,000 is received over three years. Compare the NPVs and IRRs to see the impact of shifting $1,000 between years.
Step by Step Answer:
NPV C 0 C PVFA kn a NPV 5000 2000 PVFA 123 5000 20...View the full answer
Related Video
NPV stands for \"Net Present Value,\" which is a financial concept used to determine the value of an investment or project. It measures the difference between the present value of cash inflows and the present value of cash outflows over a given period of time, using a specific discount rate. To calculate the NPV of an investment, you need to first estimate the cash inflows and outflows associated with the investment, and then discount them back to their present values using a discount rate. The discount rate represents the cost of capital or the expected rate of return required by investors. The formula for calculating NPV is: NPV = sum of (cash inflows / (1 + discount rate)^t) - sum of (cash outflows / (1 + discount rate)^t) Where: Cash inflows: the expected cash received from the investment Cash outflows: the expected cash paid out for the investment Discount rate: the required rate of return or the cost of capital t: the time period in which the cash flow occurs If the NPV is positive, it means that the investment is expected to generate a return higher than the required rate of return or the cost of capital, and it may be considered a good investment. If the NPV is negative, it means that the investment is not expected to generate a return higher than the required rate of return or the cost of capital, and it may be considered a bad investment.
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