Answer :
The Net Present Value is $59,382.65 and the IRR is approximately 23.77%.
To calculate the Net Present Value (NPV), we need to discount each cash flow by the cost of capital and sum them up. The formula for NPV is:
NPV = CF₁ / (1 + r) + CF₂ / (1 + r)² + CF₃ / (1 + r)³ + ...
Where
CF₁, CF₂, CF₃ are the cash flows and r is the cost of capital.
Given the cash flows of $25,000, $24,000, and $23,000, and a cost of capital of 10%, we can calculate the NPV as follows:
NPV = $25,000 / (1 + 0.10) + $24,000 / (1 + 0.10)² + $23,000 / (1 + 0.10)³
NPV = $22,727.27 + $19,652.89 + $17,002.49
NPV = $59,382.65
To calculate the Internal Rate of Return (IRR), we need to find the discount rate that makes the NPV equal to zero. In other words, we need to solve the equation:
0 = CF₁ / (1 + IRR) + CF₂ / (1 + IRR)² + CF₃ / (1 + IRR)³ + ...
Using the same cash flows as before ($25,000, $24,000, and $23,000), we can find the IRR using a financial calculator or software. In this case, the IRR is approximately 23.77%.
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