Answered

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. Los Angeles Lumber Company is considering a project with a cost
of $1,000 initially, and inflows of $300 at the end of years 1-5. LALC's cost of capital is 12 percent. What is the project's IRR and NPV?

Sagot :

Parrain

Based on the cost, the inflows, and the cost of capital, the project IRR is 15.24% and NPV is $81.44

The NPV is:

= Present value of inflows - initial cost

As the inflows are constant, we can find the present value as an annuity:

= (Inflow x Present value interest factor of annuity, 12%, 5 years) - 1,000

= (300 x 3.6048) - 1,000

= $81.44

The IRR can be calculated by Excel as shown in the attached file. List the cashflows and the years and then use the IRR function as shown:

= 15.24%

In conclusion, IRR is 15.24% and the NPV is $81.44

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