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    virtuous1's Avatar
    virtuous1 Posts: 1, Reputation: 1
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    #1

    Oct 20, 2007, 08:18 PM
    Finding the NPV solution
    Can someone please help me with the solution to this problem. Project K costs $52,125, its expected net cash inflows are $12,000 per year for 8 years, and its WACC is 12%. What is the projects NPV?
    I know the IRR is 16%, but how do I get this solution? And the same for the payback period, which I know is 4.34 years?
    bm885's Avatar
    bm885 Posts: 1, Reputation: 1
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    #2

    Nov 11, 2007, 04:25 PM
    $52,125/$12,000 = 4.3438, so the payback is about 4 years.

    NPV = -$52,125 + $12,000[(1/i)-(1/(I*(1+i)n)]
    = -$52,125 + $12,000[(1/0.12)-(1/(0.12*(1+0.12)8)]
    = -$52,125 + $12,000(4.9676) = $7,486.20.

    Financial calculator: Input the appropriate cash flows into the cash flow register, input I = 12, and then solve for NPV = $7,486.68.

    Financial calculator: Input the appropriate cash flows into the cash flow register and then solve for IRR = 16%.

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