Answer and Explanation:
The computation of the IRR is shown below:
<u>Year Particulars Amount (in $)
</u>
0 Initial cost -6,336,382
1 Year 1 cash inflows 1,460,000
2 Year 2 cash inflows 1,460,000
3 Year 3 cash inflows 1,460,000
4 year 4 cash inflows 1,460000
5 Year 5 cash inflows 1,460,000
6 Year 6 cash inflows 1,460,000
IRR 10.12%
Perform the IRR formula i.e.
= IRR() in excel
Now the net present value is
= Present value of cash inflows - initial investment
= ($1,460,000 × 4.1114) - $6,336,382
= $6,002,644 - $6,336,382
= -$333,738
The 4.1114 is the PVIFA factor of 6 years at 12%
hence, the Wildhorse should not go ahead with the project
