SOLUTION: 12. A firm is considering a capital project with a net cash flow as follows: year 0 1 2 3 4 5 Net Cash Flow (80000) 18000 20000 25000 38000 45000 Calculate the IRR for th

Question 1156393: 12. A firm is considering a capital project with a net cash flow as follows:
year 0 1 2 3 4 5
Net Cash
Flow
(80000) 18000 20000 25000 38000 45000
Calculate the IRR for the project using 1 = 6% and 2 = 15%. (8 marks)
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Answer by Theo(13342) (Show Source): You can put this solution on YOUR website!
microsoft excel will do this for you, using their IRR function.
i'm not sure if you're asking for the IRR or the NPV at those interest rates.
At the IRR, the NPV is equal to 0, as you'll see from the results.
here's the results.

$$$

the net present value (NPV) at the internal rate of return is $0.00, as it should be.
the net present value at 6% is equal to $39,497.72
the net present value at 15% is equal to $11,312.53
since the net present value is positive in both cases, that means the project is earning at least as much as the required rate of return specified.

since the npv at the internal rate of return is 0, and the npv was positive when the rate of return was less than the internal rate of return, then it's likely that the rate of return will be negative at a rate of return greater than the internal rate of return.
for example, at 25% rate of return, the npv was equal to -$9689.6

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