An investment cost $8,000 with expected cash flows of $3,000 for 5 years.The discount rate is 15.2382%.The NPV is ___ and the IRR is ___ for the project.
A)$0; 15.2382%
B)$3.33; 27.2242%
C)$2,000; 25.4130%
D)Can not answer without one or the other value as input
E)None of the above

Question

Quizplus · Accepted Answer

To calculate the NPV, we need to discount each cash flow and then sum them up. Using the formula:
NPV = - Cost + (CF1 / (1+r)^1) + (CF2 / (1+r)^2) + ... + (CFn / (1+r)^n)

NPV = -8,000 + (3,000 / (1+0.152382)^1) + (3,000 / (1+0.152382)^2) + (3,000 / (1+0.152382)^3) + (3,000 / (1+0.152382)^4) + (3,000 / (1+0.152382)^5)
NPV = $2,000

To calculate the IRR, we can use the IRR function on a financial calculator or Excel. The IRR for this project is 25.4130%.

Therefore, the best choice is C, as it is the only option that has both the correct NPV and IRR.

An Investment Cost $8,000 with Expected Cash Flows of $3,000