Understanding the IRR and NPV

Understanding the relationship between NPV and IRR

The NPV and IRR methods are interrelated and are sometimes used together to make capital budgeting decisions.

Consider this case:

Axis Chemical Co$.$ lost a lot of its accounting information because of a problem with its electronic record$-$keeping system. Its CFO knows that the IRR

of project Alpha is $11\mathrm{.}3\%$; however, the CFO does not know how much Axis Chemical Co$.$ originally invested in the project. The cash flows for project

Alpha are listed as follows:

The finance team is trying to calculate the initial investment using the information available to them. IRR is the cost of capital at which NPV equals $$0$

Using this information, the initial investment of the project turns out to be

Project Alpha has the same risk as a firm's average project. The company has a WACC of $8\%.$ Based on this information, the project's NPV is