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Thread: NPV and IRR Problems

  1. #1
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    NPV and IRR Problems

    Can someone check if I did part 1 correct and help explain part 2?
    1. Alpha is considering Project A with a cost of capital of 6%
    A: -10,000, 3500, 3500, 3500

    to calculate the NPV I did -10,000 + 3500/1.06 + 3500/(1.06^2) + 3500/(1.06^3) = -644.46
    I used a ti 84 plus to calculate the IRR which I got 2.48
    so the NPV < 0 which is the investment would subtract value from the firm and the IRR which is 2.48 is less than the 6% cost of capital.
    I should reject Plan A

    2. Delta Co. is considering Project D
    D: -3,000, 5000, 5000, 5000, -20,000

    The IRR I was given was 8.1 and the NPV at 12 percent was 838.
    The NPV is > 0 but the IRR is < the cost of capital. I don't think I should accept the project because the cash outflow starts out positive cash flows in years 1-3 with 5000 but in year 4 its -20,000. But the NPV is positive so it would still add value. Is there a way to check this with numbers or can someone explain to me if I should accept this?
    Last edited by JHY99; Dec 12th 2016 at 07:26 AM.
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  2. #2
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    Re: NPV and IRR Problems

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