Chapter 11, Problem 7ME

To determine

(a)

Concept introduction:

NPV:

Net present value (NPV) is the method to evaluate the project feasibility. This method calculates the present value of cash inflows and outflows, and then calculates the net present value of the investment. A project should be accepted if it has a positive NPV. The formula to calculate the NPV is as follows:

$NPV= Presentvalueofcashinflows–Presentvalueofcashoutflows$

To calculate:

The NPV of the project.

To determine

(b)

Concept introduction:

IRR:

Internal Rate of Return (IRR) is the rate at which the NPV of the project is 0 or we can say that IRR is the rate of return at which the project is at breakeven. IRR is calculated using excel or approximation method.

To indicate:

If the IRR of the project is more or less than 11%.