Question

2. A company is considering a project that has the following cash flows: C0 = -3,000, C1 = +900, C2 = +500, C3 = +1,100, and C4 = +1,900, with a risk-adjusted discount rate of 8%. A) Calculate the Net Present Value (NPV), Internal Rate of Return (IRR), Modified Internal Rate of Return (MIRR), and Profitability Index (PI) of this project. B) If you were the manager of the firm, will you accept or reject the project based on the calculation results above?

Answer 1

Year	Cash flow	× discount rate@ 8.0%	Present value
0	$        (3,000.00)		$ -3,000
1	$             900.00	0.9259	$                   833.33
2	$             500.00	0.8573	$                   428.67
3	$          1,100.00	0.7938	$                   873.22
4	$          1,900.00	0.7350	$                1,396.56
			$                            -
NPV		3.3121	$ 531.77

NPV is 531.77

IRR using excel is 14.58%

PI = 3531.77/3000= 1.18

MIRR:

YEARS	Amount ($)	x factor @8%	PV of Cash Outflows	PV of Cash Inflows
0	$      (3,000)	1.00000	$ (3,000.00)	$              -
1	$      900.00	0.92593	$              -	$      833.33
2	$      500.00	0.85734	$              -	$      428.67
3	$ 1,100.00	0.79383	$              -	$      873.22
4	$ 1,900.00	0.73503	$              -	$ 1,396.56
Total			$ (3,000.00)	$ 3,531.77
N=	4
MIRR =	[PV inflows/PV outflows]^1/n×(1+r) -1
=	[3531.77/3000]^1/4(1+0.08)-1
=	12.50%

MIRR is 12.50%

please rate.