Question

please shows work for the following questions:

2. You also have a second project that will also cost 1750 to invest in today, and will generate cash inflows of 300, 500, 590, and 1000 at the end of each of the next four years. If the discount rate is 10%, what is the MIRR and should you accept the project based on the MIRR?

3. You have a third project that will cost 1700 to invest in today, will generate cash flows of 50, 100, 200, and 250 at the end of each of the next four years, with cash flows continuing to grow at a constant rate of 3% starting with the fourth cash flow and continuing forever. If the discount rate is 15%, what is the NPV and should you accept the project based on the NPV?$

Answer 1

2.We use the formula:  
A=P(1+r/100)^n
where
A=future value
P=present value  
r=rate of interest
n=time period.

Future value of inflows=300*(1.1)^3+500*(1.1)^2+590*(1.1)+1000

=2653.3

MIRR=[Future value of inflows/Present value of outflows]^(1/time period)-1

=[2653.3/1750]^(1/4)-1

=10.97%(Approx)

Hence since MIRR is greater than discount rate;project should be accepted.

3.Value after year 4=(Cash flow for year 4*Growth rate)/(Discount rate-Growth rate)

=(250*1.03)/(0.15-0.03)

=2145.8333(Approx)

Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

=50/1.15+100/1.15^2+200/1.15^3+250/1.15^4+2145.8333/1.15^4

=$1620.42(Approx)

NPV=Present value of inflows-Present value of outflows

=1620.42-1700

=$-79.58(Approx)(Negative)

Hence since NPV is negative;project must be rejected.