If an investment project is described by the sequence of cash flows:
Year |
Cash flow |
0 |
-300 |
1 |
-900 |
2 |
1100 |
3 |
500 |
Calculate the MIRR, we will assume a finance rate of 8% and a reinvestment rate of 10% [5]
Find the IRR (using 7%, 10%, 11%) of an investment having initial cash outflow of $3,000. The cash inflows during the first, second, third and fourth years are expected to be $700, $800, $900 and $1,200 respectively [5]
(c ) Company X is currently making its capital budgeting decisions for the upcoming year. Among the projects they are considering are two equipment: Equipment A and equipment AA. Equipment A costs $50,000 but will produce expected after-tax cash inflows of $30,000 at the end of each of the next 2 years. Equipment AA also costs $50,000 but will produce expected after tax cash inflows of $16,500 at the end of each of the next 4 years. Both projects have a 12% cost of capital.Assume that these are Mutual excusive projects. Using NPV, Which project or projects should the company accept [5]
(d) year CF_{X}
It is now determined that the cost of capital for both projects is 14%. Using IRR, should the Project be selected? [5]
a) MIRR | |||||
MIRR(values, finance_rate, reinvest_rate) | |||||
MIRR(-300,-900,1100,500,8%,10%) | 14.70% | ||||
b) | |||||
Year | Cash flow | ||||
0 | -3000 | ||||
1 | 700 | ||||
2 | 800 | ||||
3 | 900 | ||||
4 | 1200 | ||||
IRR | 7.04% | ||||
c) | |||||
Year | Project A | Project AA | Discount Rate 12% | PV project A | PV project AA |
0 | -$50,000.00 | -$50,000.00 | 1 | -$50,000.00 | -$50,000.00 |
1 | $30,000.00 | $16,500.00 | 0.892857143 | $26,785.71 | $14,732.14 |
2 | $30,000.00 | $16,500.00 | 0.797193878 | $23,915.82 | $13,153.70 |
3 | $16,500.00 | 0.711780248 | 0 | $11,744.37 | |
4 | $16,500.00 | 0.635518078 | 0 | $10,486.05 | |
NPV | $701.53 | $116.26 | |||
Project A would be selected because it has highest NPV. | IRR |
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