(Ignore income taxes in this problem.)Congener Beverage Corporation is considering an investment in a project that has an internal rate of return of 20%.The only cash outflow for this project is the initial investment.The project is estimated to have an 8 year life and no salvage value.Cash inflows from this project are expected to be $100,000 per year in each of the 8 years.Congener's discount rate is 16%.What is the net present value of this project?

Question

Quizplus · Accepted Answer

The internal rate of return is the rate of return at which the investment required equals the present value of the cash inflows.
Investment required = Net annual cash inflow × Present value factor of an annuity for 8 years at 20%
Investment required = $100,000 × 3.837 = $383,700
Net present value = -Investment required + (Net annual cash inflow × Present value factor of an annuity for 8 years at 16%)
= -$383,700 + ($100,000 × 4.344) = $50,700

(Ignore Income Taxes in This Problem