What is the IRR of the project?  What is the NPV of the project, based on the required rate of return of 12%?

The Internal Rate of Return (IRR) is the rate at which a project’s net present value (NPV) is equal to zero. For this calculation, you must determine your required rate of returns, which is in this case 12%. Using an NPV Calculator or Formula, they can calculate discounted cash flows for the project.

For example, if a project requires an initial investment of $10,000 and will generate $30,000 in income over 5 years at 12% discount rate then its IRR would be 14% ($30,000 – $10,000 = NPV of +$20,000; 20 / 10 = 2; 2 x 100 = 200; √200/2 – 1=14%).

You can then use the IRR along with the required rate of returns to determine the NPV. When comparing our IRR (14% in our above example) to the required rate (12%), it is clear that our NPV (+$20,000) will be positive.