Question

If an investment project is described by the sequence of cash flows: Year Cash flow 0...

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        CFX

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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