Please show steps for how to calculate for the variable "r"

View an example | All parts showing You are considering opening a new plant. The plant will cost $110.0 million up front and will take one year to build. After that it is expected to produce profits of $32.1 million at the end of every year of production (starting two years from now). The cash flows are expected to last forever. Calculate the NPV of this investment opportunity if your cost of capital is 9.5%. Should you make the investment? Calculate the IRR and use it to determine the maximum deviation allowable in the cost of capital estimate to leave the decision unchanged. NPV = - $110.0 million + $308.6 million = $198.6 million The NPV of the project will be $198.6 million. Since the NPV is greater than zero, you should make the investment. The IRR is found by determining the rate which will make the NPV equal to zero, as shown in the following formula 1 CF X :- CFO = 0 (1 + r) + r 1 $32.1 million 0 = - $110.0 million + +r) Solving for the unknown r, r= 23.61%. The IRR is 23.61% The maximum deviation allowable in the cost of capital estimate is the difference between the IRR and the cost of capital. Maximum allowable difference is 23.61% -9.5% = 14.11%. Print Close