Question

Consider the investment project with the following net cash flows. What would be the value of X if the project’s IRR is 25%? End of year (n) Net Cash Flow Year 0 -$12,000 Year 1 $2,500 Year 2 $5,500 Year 3 X Year 4 X

Answer 1

Answer:

X=$7031.25

Explanation:

The value of the X for the current investment project shall be determined through the following mentioned equation:

Net present value=Present value of all the cash flows associated with the investment project

AT IRR, Net present value=0

0=-$12,000(1+25%)^0+$2,500(1+25%)^-1+$5,500(1+25%)^-2+X(1+25%)^-3+X(1+25%)^-4

0= -$12,000+$2,000+$3,520+0.512X+0.4096X

0= -$6480+0.9216X

$6480=0.9216X

X=$7031.25