Question: Understanding the IRR & NPV Cold Goose lost a portion of its planning & financial data when its server & its backup server crashed. The

Understanding the IRR & NPV

Cold Goose lost a portion of its planning & financial data when its server & its backup server crashed. The CFO remembers that the IRR of Project Zeta is 11.3% but cant recall how much Cold Goose originally invested nor the NPV. The CFO found a note that contained the annual net cash flows expected to be generated by Project Zeta.

Year 1	$1,800,000
Year 2	$3,375,000
Year 3	$3,375,000
Year 4	$3,375,000

The CFO has asked you to compute Project Zetas initial investment with the information. He has offered the following suggestions & observations:

A projects IRR represents the return the project would generate when its NPV is 0 or the discounted value of its cash inflows equals the discounted value of its cash outflows-when the cash flows are discounted using the projects IRR.

The level of risk exhibited by Project Zeta is the same as that exhibited by the companys average project, which means that Zetas net cash flow can be discounted using Cold Gooses 7% desired rate of return.

1. Given the data & hints, Project Zetas initial investment is

A. $8,988,943

B. $9,296,809

C. $10,404,037

D. $9,073,515

2. Project Zetas NPV is

A. $776,746

B. $970,932

C. $1,116,572

D. $1,165,118

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