Unlevered IRR = NPV? WACC
So say you're considering a company with the following cash flows.
Year 1: 10
Year 2: 15
Year 3: 20
Year 4: 35
Year 5 (exit year, perpetual): 90
If you do a NPV using a discount rate (WACC) of XYZ you get some number ABC. You decide to buy this company at price ABC
Now if you do an IRR (without taking out debt) analysis so this is the unleveled IRR
Year 0 = -ABC
Year 1= 10
Year 2 =15
Year 3-5 = same as above
Wouldn't the unleveled IRR be the same as the WACC/Discount rate you used for your NPV analysis?
Of course the levered IRR (net debt cash flow) would be the figure you'd be looking at to see if you should take on the project or not.
What's up with the extra 5 in year 2...?
Assuming that you intended the resulting cash flows to be the same, then yes, pretty much by definition, in this case the IRR = your discount rate.
So what would the CAGR be? So say you get levered free cash flow and you end up with a IRR of XYZ (WACC) + 2%.
Whats the CAGR or how would you calculate that? Would you use the the NPV of the levered free cash flow or would you use the exit value as the final value?
Same question with ROI
The CAGR of... what, exactly? The CAGR of the value of the business? The CAGR of the value of your (equity) investment?
When you calculate a CAGR, you're using non-discounted amounts. Otherwise, you're actually discounting them twice
Thanks other quick questions. So if you have an IRR = WACC that means you don't make any money correct?
That means when you buy an asset AT the NPV you will not make money correct?
I believe so. Since in this case IRR=NPV=0=WACC
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