Chapter 9 Assignment 6. Understanding the IRR and NPV The net present value (NPV) and internal rate of return (IRR) methods of investment analysis are interrelated and are sometimes used together to make capital budgeting decisions. Consider the case of Fuzzy Button Clothing Company: Last Tuesday, Fuzzy Button Clothing Company lost a portion of its planning and financial data when its server and its backup server crashed. The company's CFO remembers that the internal rate of return (IRR) of Project Zetais 13.20%, but he can't recall how much Fuzzy Button originally invested in the project nor the project's net present value (NPV). However, he found a note that contained the annual net cash flows expected to be generated by Project Zeta. They are Year Cash Flow 1 2 $2,400,000 4,500,000 4,500,000 4,500,000 3 4 ing The CFO has asked you to compute Project Zeta's initial investment using the information currently available to you. He has offered the suggestions and observations: A project's IRR represents the return the project would generate when its NPV is zero or the discounted value of its cash inflows equals the discounted value of its cash outflows-when the cash flows are discounted using the project IRR. The level of risk exhibited by Project Zeta is the same as that exhibited by the company's average project, which means that Project Zeta's net cash flows can be discounted using Fuzzy Button's 8.00% desired rate of return MacBook Air SO Chapter 9 Assignment Last Tuesday, Fuzzy Button Clothing Company lost a portion of its planning and financial data when its server and its backup server crashed. The company's CFO remembers that the internal rate of return (IRR) of Project Zeta is 13.20%, but he can't recall how much Furry Button originally invested in the project nor the project's net present value (NPV). However, he found a note that contained the annual net cash flows expected to be generated by Project Zeta. They are: Year Cash Flow 1 2 $2,400,000 4,500,000 4,500,000 3 4 4,500,000 The CFO has asked you to compute Project Zeta's initial investment using the information currently available to you. He has offered the following suggestions and observations: A project's IRR represents the return the project would generate when its NPV is zero or the discounted value of its cash inflows equals the discounted value of its cash outflows-when the cash flows are discounted using the project's IRR. The level of risk exhibited by Project Zeta is the same as that exhibited by the company's average project, which means that Project Zeta's net cash flows can be discounted using Fuzzy Button's 8.00% desired rate of return. and its NPV is (both rounded to the nearest whole Given the data and hints, Project Zeta's initial investment is dollar). Grade It Now Save & Continue Continue without saving remembers that the internal rate of return (IRR) of Project Zeta is 13.20%, but he can't reca e project nor the project's net present value (NPV). However, he found a note that contained t Project Zeta. They are: Cash Flow $2,400,000 4,500,000 4,500,000 4,500,000 asked you to compute Project Zeta's initial investment using the information currently available to nd observations: t's IRR represents the return the project would rate when its NPV is zero or the discounted v the discounted value of its cash outflows-wher $11,938,112 are discounted using the project's I el of risk exhibited by Project Zeta is the same $13,329,689 by the company's average project. met cash flows can be discounted using Fuzzy B! esired rate of return. $11,618,551 $11,474,565 ca and hints, Project Zeta's initial investment is , and its NPV is Grade It Nou MacBook AIF its planning and financial data when its server and its backup server crashed. The R) of Project Zeta is 13.20%, but he can't recall how much Fuzzy Button originally 7). However, he found a note that contained the annual net cash flows expected to be cment using the information currently available to you. He has offered the following generate when its NPV is zero or the discounted value of its cash inflows che cash flows are discounted usin $1,411,283 IRR. s that exhibited by the company's Et, which means that Project $1,485,561 ton's 8.00% desired rate of return $1,782,673 $1,634,117 and its NPV is (both rounded to the nearest whole Grade It Now Save & Continue Continue without saving MacBook Air