1 Using the Discounted Cash Flow template found in our Black

1. Using the Discounted Cash Flow template found in our Blackboard Classroom, or any other method you would like, calculate the internal rate of return for a project that has these annual inflows and outflows: Using a discount rate of 6%, what is the Net Present Value of these cash flows? Year 0 (the present) Year 1 Year 2 Year 3 Year 4 Year 5 Inflows $ 0 $2,000 $3,000 $4,000 $5,000 $6,000 Outflows $ 10,000 $ 500 $ 600 $ 700 $ 800 $ 900 The Internal Rate of Return is: _______________ The Net Present Value of these cash flows at 6% is : ______________

Solution:

NPV Calculation
	0	1	2	3	4	5
Outflows	10,000	500	600	700	800	900
PVIF @ 6%	1	0.943	0.890	0.840	0.792	0.747
Present value of cash outflows	10,000.00	471.70	534.00	587.73	633.67	672.53
Total present value of cash outflows	12,899.64
Cash inflow	0	2,000	3,000	4,000	5,000	6,000
PVIF @ 6%	1	0.943	0.890	0.840	0.792	0.747
Present value of cash inflows		1,886.79	2,669.99	3,358.48	3,960.47	4,483.55
Total present value of cash inflows	16,359.28
NPV = Total present value of cash inflows - Total present value of cash outflows	3,459.64
IRR Calculation
	0	1	2	3	4	5
Outflows	10,000	500	600	700	800	900
PVIF @ 18%	1	0.847	0.718	0.609	0.516	0.437
Present value of cash outflows	10,000.00	423.73	430.91	426.04	412.63	393.40
Total present value of cash outflows	12,086.71
Cash inflow	0	2,000	3,000	4,000	5,000	6,000
PVIF @ 18%	1	0.847	0.718	0.609	0.516	0.437
Present value of cash inflows		1,694.92	2,154.55	2,434.52	2,578.94	2,622.66
Total present value of cash inflows	11,485.59
NPV = Total present value of cash inflows - Total present value of cash outflows	- 601.12
IRR = 6 % + ( 3,459.64 / ( 3,459.64 - ( -601.12)) * 12% = 16.22 %

1 Using the Discounted Cash Flow template found in our Black

Solution

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