Question

A project has an initial cost of $36,075, expected net cash inflows of $14,000 per year for 7 years, and a cost of capital of 10%. What is the project's MIRR? Do not round intermediate calculations. Round your answer to two decimal places. Answer = _____________________

A project has an initial cost of $48,675, expected net cash inflows of $14,000 per year for 10 years, and a cost of capital of 13%. What is the project's PI? Do not round your intermediate calculations. Round your answer to two decimal places. Answer = ______________________

A project has an initial cost of $56,425, expected net cash inflows of $13,000 per year for 9 years, and a cost of capital of 12%. What is the project's payback period? Round your answer to two decimal places. Answer = __________________________

A project has an initial cost of $35,000, expected net cash inflows of $8,000 per year for 7 years, and a cost of capital of 11%. What is the project's discounted payback period? Round your answer to two decimal places. Answer = _______________________

Talbot Industries is considering launching a new product. The new manufacturing equipment will cost $19 million, and production and sales will require an initial $1 million investment in net operating working capital. The company's tax rate is 35%.

1. What is the initial investment outlay? Write out your answer completely. For example, 2 million should be entered as 2,000,000.
   $
   
2. The company spent and expensed $150,000 on research related to the new project last year. Would this change your answer?
   -Select-Yes or NO
   
3. Rather than build a new manufacturing facility, the company plans to install the equipment in a building it owns but is not now using. The building could be sold for $1.5 million after taxes and real estate commissions. How would this affect your answer?
   The project's cost will -Select- increase , decrease or not change  

Answer 1

Answer to Question 1:

Initial Investment = $36,075
Annual Cash Inflows = $14,000
Life of Project = 7 years
Cost of Capital = 10%

Future Value of Cash Inflows = $14,000*1.10^6 + $14,000*1.10^5 + … + $14,000*1.10 + $14,000
Future Value of Cash Inflows = $14,000 * (1.10^7 - 1) / 0.10
Future Value of Cash Inflows = $14,000 * 9.487171
Future Value of Cash Inflows = $132,820.394

MIRR = (Future Value of Cash Inflows / Initial Investment)^(1/Period) - 1
MIRR = ($132,820.394 / $36,075)^(1/7) - 1
MIRR = 3.681785^(1/7) - 1
MIRR = 1.2047 - 1
MIRR = 0.2047 or 20.47%

Answer to Question 2:

Initial Investment = $48,675
Annual Cash Inflows = $14,000
Life of Project = 10 years
Cost of Capital = 13%

Present Value of Cash Inflows = $14,000/1.13 + $14,000/1.13^2 + … + $14,000/1.13^9 + $14,000/1.13^10
Present Value of Cash Inflows = $14,000 * (1 - (1/1.13)^10) / 0.13
Present Value of Cash Inflows = $14,000 * 5.426243
Present Value of Cash Inflows = $75,967.402

Profitability Index = Present Value of Cash Inflows / Initial Investment
Profitability Index = $75,967.402 / $48,675
Profitability Index = 1.56