Corporate is considering finance in a new project and its initial investment is USD

Finance Dec 26, 2020

Corporate is considering finance in a new project and its initial investment is USD. The new project is expected to generate the following cash flows over the next five years. The market rate for similar investments is 5 percent. The risk-free interest rate is 1.5%.

- T1: -1,000,000 (Outflow)

- T2: 150,000

- T3: 200,000

- T4: 650,000

- T5: 150,000

Calculate the net present value (NPV) and Interest Rate of Return (IRR). And please assess whether or not the project should proceed (show the process of how you got the answer).

Expert Solution

ANSWER

NPV = 8726.52

IRR = 5.36%

CASH FLOWS		PV FACTOR @5%	PV OF CASH FLOWS
YEAR 0	0		0
YEAR 1	-1000000	0.952	-952380.95
YEAR 2	150000	0.907	136054.42
YEAR 3	200000	0.864	172767.52
YEAR 4	650000	0.823	534756.61
YEAR 5	150000	0.784	117528.92
ROR	5.0%	NPV =	8726.52
		IRR =	5.36%	=IRR(VALUES)

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