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Question: Your uncle is a proud owner of an up-market clothing store. Because business is down he is considering replacing the languishing tie department with a new sportswear department. In order to examine the profitability of such move he hired a financial advisor to estimate the cash flows of the new department. After six months of hard work the financial advisor came up with the following calculation

The discount rate is 12%, and there are no additional taxes. Thus, the financial advisor calculated the NPV as follows:

-67,000+7,000 = -8,667
0.12

Your surprised uncle asked you (a promising finance student) to go over the calculation. What are the correct NPV and IRR of the project?

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