Anderson International Limited is evaluating a project in Erewhon. The project w
ID: 2772520 • Letter: A
Question
Anderson International Limited is evaluating a project in Erewhon. The project will create the following cash flows:
All cash flows will occur in Erewhon and are expressed in dollars. In an attempt to improve its economy, the Erewhonian government has declared that all cash flows created by a foreign company are “blocked” and must be reinvested with the government for one year. The reinvestment rate for these funds is 5 percent.
If Anderson uses a required return of 9 percent on this project, what are the NPV and IRR of the project?(Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16))
NPV = -85,955.37
IRR = ?
Anderson International Limited is evaluating a project in Erewhon. The project will create the following cash flows:
Explanation / Answer
Here the NPV at 9% & 5% is being calculated as shown -43897 & 58746 in the table respectively and on the basis of that the IRR is 7.29%
Year Cash Flow PVF @ 9% DCF Cummulative DCF PVF @ 5% DCF 1 365000 0.92 334862 334862 0.95 347619 2 430000 0.84 361922 696785 0.91 390023 3 325000 0.77 250960 947744 0.86 280747 4 280000 0.71 198359 1146103 0.82 230357 Total Inflow 1146103 Total Inflow 1248746 less Cash Outflow -1190000 less Cash Outflow -1190000 NPV @ 9% -43897 NPV @ 5% 58746 IRR = 5+(4 x 58746/(58746-(-43897))) IRR = 7.29