An investment cost $12,000 with expected cash flows of $4,000 for 4 years. The discount rate is 15.2382%. The NPV is ______ and the IRR is ______ for the project.
A) -$634.89; 12.60%
B) $0; 15.2382%
C) $4,000; 0%
D) Can not answer without one or the other value as input.
E) None of these.

Question

Quizplus · Accepted Answer

To calculate the NPV, we need to discount the cash flows using the given discount rate:
NPV = -$12,000 + $4,000/(1+0.152382)^1 + $4,000/(1+0.152382)^2 + $4,000/(1+0.152382)^3 + $4,000/(1+0.152382)^4 = -$634.89
Since the NPV is negative, the IRR must be less than the discount rate. We can use trial and error or a financial calculator to find the IRR that makes NPV=0. The IRR turns out to be approximately 12.60%. Therefore, the answer is A.

An Investment Cost $12,000 with Expected Cash Flows of $4,000