Npv/ irr

[hannah19142]

NPV/ IRR Problem

Hi!

I'm working on a practice test for my finance class, and I can't figure out how to calculate the NPV and IRR when the initial cash flow/investment isn't given.

The problem gives the following cash flows:

Year 0: -
Year 1: 400,000
Year 2: 200,000
Year 3: 100,000
Year 4: 75,000
Year 5: 60,000

It says that the required rate of return is 5 percent, and then it asks you to calculate the NPV and IRR.

I'm not sure what to do without the initial cash flow! I typically use excel for these calculations, but without a sign change, it gives me an error message. Is there a way to calculate this value?

Any help would be appreciated!

 

[hannah19142]

The initial cash flow is the NPV...you're asked to calculate it!

Hint: NPV = 400000/1.05 + 200000/1.05^2 + ......

I actually tried that, but came up with the wrong answer! Using this method, I came up with an NPV of $1,189,715.21 and an IRR of 7%, but according to the answer key, it should be $72,995 and 14.05%, respectively.

Am I doing something wrong?