Question

You are considering a project that will require an initial outlay of $54,200. This project has an expected life of 5 years and will generate after-tax flows to the company as a whole of $20,608 at the end of each year over its 5-year life. In addition to the $20, 608 cash flow from operations during the fifth and final year, there will be an additional cash outflow of $23,608 at the end of the fifth and final year associated with the removal of environmental waste, making the cash flow in year 5 equal to $-3,000. Given a required rate of return of 15 %

a. (2 pts) Calculate the IRR.

b. (4 pts) Calculate the net present value (NPV).

c.  (2 pts) Calculate the MIRR.

d. (2 pts) Based on the answers above, should the project be accepted? Explain.

Please show work in Excel.

Answer 1

Hello,
As per the details given in the question
5 year netinflow is -3000 (20608 - 23608)

Year	Cashflow	Pv of cash outflow
0	-54200	-54200
1	20608	$17,920.00
2	20608	$15,582.61
3	20608	$13,550.09
4	20608	$11,782.69
5	-3000	($1,491.53)
	Pv of Inflow	$57,343.86
	IRR	17.93%
	NPV	PV of inflow - outflow
	NPV	$3,143.86
	MIRR	16.27%

Yes, project should be accepted, because it has a positive NPV.

I hope this clear your doubt.

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Hem DINOL Year Cashflow Pv of cash outflow 0 -54200 -54200 1 20608 =PV(15%,B6,0,-C6) 20608 =PV(15%,B7,0,-C7) 20608 =PV(15%,B8,0,-C8) 4 20608 =PV(15%,B9,0,-09) -3000 =PV(15%,B10,0,-C10) Pv of Inflow =SUM(D6:010) IRR =IRR(D5:010) NPV PV of inflow - outflow =+D11+C5 MIRR =MIRR(D5:D10,15%,15%) 11 12 13 NPV