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A project has an initial outlay of $25,000,000 in year 0, and an additional $15,000,000 in...

  1. A project has an initial outlay of $25,000,000 in year 0, and an additional $15,000,000 in year 1. Free cash flows will then be $4,500,000 per year for 10 years.

  1. What is the Payback for the project?
  1. Calculate the NPV, IRR, MIRR and PI for the project, if your required rate is 12%.
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Answer #1

Please find the cashflows

required rate 12%
Year0 -25000000
Year1 -10500000
Year2 4500000
Year3 4500000
Year4 4500000
Year5 4500000
Year6 4500000
Year7 4500000
Year8 4500000
Year9 4500000
Year10 4500000
NPV -12966853.52
IRR 2.4%
MIRR 6.82%
PI 0.48

Payback period is the time it takes to retain the intial cost of investment.

It takes 8 years to recieve 21,000,000 and the remaining 4,000,000 in 9th year

9th year=4,000,0000/4,500,000=0.88

Payback period=8.88 years

b. Use NPV,IRR and MIRR functions to find the values

=NPV(rate,Year1 to Year10 cashflows)-Year0 cashflow

=NPV(12%,Year1 to Year10 cashflows)-25000000=-12966853.52

=IRR(Year0 to Year10 cashflows)=2.4%

=MIRR(Year0 to Year10 cashflows,finance rate,reinvest rate)

=MIRR(Year1 to Year10 cashflows,12%,12%)=6.82%

PI=NPV(12%,Year1 to Year10 cashflows)/25000000=0.48

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