Calculate the IRR and NPV of this project utilizing 12% discount rate and a 15% cap rate. Ms. Brown was able to secure a loan for $1,540,000 and an early investor agreed to invest the remaining $660,000 in exchange for 20% ownership in the project.
To calculate the IRR and NPV of the project, we need to know the cash inflows and outflows associated with it. Could you please provide the cash inflows and outflows for the project?
To calculate the Internal Rate of Return (IRR) and Net Present Value (NPV) of a project, we need to follow these steps:
1. Identify and calculate the project's cash flows: In this case, we have two cash flows - the loan amount of $1,540,000 and the investment amount of $660,000.
2. Determine the project's ownership structure: The early investor is contributing $660,000 in exchange for a 20% ownership stake in the project, which means the remaining 80% is owned by Ms. Brown.
3. Calculate the project's net cash flows: Multiply the total cash flow by the ownership percentage for each cash flow. For the loan, Ms. Brown's share is 80% ($1,540,000 x 0.8 = $1,232,000), and for the investment, the investor's share is 20% ($660,000 x 0.2 = $132,000).
4. Calculate the present value of each cash flow: Using the discount rate of 12%, we can calculate the present value of each cash flow using the formula: PV = CF / (1 + r)^n, where CF is the cash flow, r is the discount rate, and n is the time period. In this case, assuming a single time period, the present value of Ms. Brown's loan is $1,232,000 / (1 + 0.12) = $1,098,214.29, and the present value of the investor's investment is $132,000 / (1 + 0.12) = $117,857.14.
5. Calculate the project's net present value (NPV): The NPV is the sum of the present values of all cash flows. In this case, the NPV is $1,098,214.29 + $117,857.14 = $1,216,071.43.
6. Calculate the project's internal rate of return (IRR): The IRR is the discount rate that makes the NPV equal to zero. To calculate the IRR, we would need a more detailed breakdown of the cash flows, including the time period and specific amounts for each cash flow.
Therefore, without additional information regarding the timing and amounts of the cash flows, we cannot calculate the project's IRR.