Using the following dа ta:

• Initial Investment = $10,000,000

• Cash Inflow - Year 1 = $3,000,000

• Cash Inflow - Year 2 = $3,500,000

• Cash Inflow - Year 3 = $4,000,000

• Cash Inflow - Year 4 = $4,900,000

• Cash Inflow - Year 5 = $5,000,000

Required:

a. Calculate Internal Rate of Return

b. Calculate Net Present Value (assuming a required return of 8%)

The answer is

A. 26.46%

B. $5,958,354.88

Explanation:

A.

IRR = CFo / (1 + IRR) ^0 + CF1 / (1 + IRR) ^1 + CF2 / (1 + IRR) ^2 + CF3 / (1 + IRR) ^3 + CF4 / (1 + IRR) ^4 + CF5 / (1 + IRR) ^5

CFo = - $10,000,000

CF1 = $3,000,000

CF2 = $3,500,000

CF3 = $4,000,000

CF4 = $4,900,000

CF5 = $5,000,000

Using a financial calculator;

IRR = 26.46%

B.

NPV = - CFo + CF1 / (1 + r) ^1 + CF2 / (1 + r) ^2 + CF3 / (1 + r) ^3 + CF4 / (1 + r) ^4 + CF5 / (1 + r) ^5

CFo = - $10,000,000

CF1 = $3,000,000

CF2 = $3,500,000

CF3 = $4,000,000

CF4 = $4,900,000

CF5 = $5,000,000

Using a financial calculator;

NPV = $5,958,354.88