Understanding the IRR and NPV

The net present value $($NPV$)$ and internal rate of return $($IRR$)$ methods of investment analysis are interrelated and are sometimes used together to

make capital budgeting decisions.

Consider the case of Cute Camel Woodcraft Company:

Last Tuesday, Cute Camel Woodcraft Company lost a portion of its planning and financial data when both its main and its backup servers

crashed. The company's CFO remembers that the internal rate of return $($IRR$)$ of Project Lambda is $13\mathrm{.}2\%,$ but he can't recall how much

Cute Camel originally invested in the project nor the project's net present value $($NPV$).$ However, he found a note that detailed the

annual net cash flows expected to be generated by Project Lambda. They are:

The CFO has asked you to compute Project Lambda's initial investment using the information currently available to you. He has offered the following

suggestions and observations:

A project's IRR represents the return the project would generate when its NPV is zero or the discounted value of its cash inflows

equals the discounted value of its cash outflows$-$when the cash flows are discounted using the project's IRR.

The level of risk exhibited by Project Lambda is the same as that exhibited by the company's average project, which means that

Project Lambda's net cash flows can be discounted using Cute Camel's $7\%$ WACC.

Given the data and hints, Project Lambda's initial investment is

$,$ and its NPV is

$($rounded to the nearest whole

dollar$).$

A project's IRR will

$\_$ if the project's cash inflows decrease, and everything else is unaffected.