NPV and IRR Benson Designs has prepared the following estimates for a long term project it is

QUESTION

NPV and IRR Benson Designs has prepared the following estimates for a long term project it is considering. The initial investment is $18,250, and the project is expected to yield after-tax cash inflows of $4,000 per year for 7 years. The firm hasa 10% cost of capital.a. Determine the net present value (NPV) for the project.b. Determine the internal rate of return (IRR) for the project.c. Would you recommend that the firm accept or reject the project? Explain your answer.
a) NPV = -18250 + 4000 * PVIFA(10%,7) = -18250 + 4.8684 * 4000 = 1223.6 b) 0 = -18250 + 4000/(1+IRR) + 4000/(1+IRR)^7 IRR = 12.01% c) the firm should accept the project since NPV is positive View comments (1) More Answers kausality answered this 6 minutes later Was this answer helpful?

0 0 3,085 answers a) NPV = -18250+4000*(1-1.1^-7)/.1 = $1223.68 b) let IRR =r 18250 = 4000*(1-(1+r)^-7)/r r = 11.85% IRR =11.85% c) project should not be accepted because of low NPV and low IRR

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