Question

6B4

A project has an initial outlay of $3,480. It has a single payoff at the end of year 3 of $9,922. What is the net present value (NPV) of the project if the company’s cost of capital is 11.97 percent?

6C4

Find the modified internal rate of return (MIRR) for the following series of future cash flows if the company is able to reinvest cash flows received from the project at an annual rate of 11.59 percent.The initial outlay is $420,300.

Year 1: $139,400

Year 2: $137,100

Year 3: $197,400

Year 4: $120,700

Year 5: $159,000

Round the answer to two decimal places in percentage form. (Write the percentage sign in the "units" box)

6D1

Find the profitability index (PI) for the following series of future cash flows, assuming the company’s cost of capital is 14.37 percent. The initial outlay is $457,779.

Year 1: $190,001

Year 2: $169,936

Year 3: $175,905

Year 4: $173,594

Year 5: $178,373

Round the answer to two decimal places

Answer 1

6B4. NPV of the project=(Cash Flow In year 3/(1+r)^3-Initial Investment =9922/(1+11.97%)^3-3480 =3587.96

6C4. FV of Cash Inflows =139400*(1+11.59%)^4+137100*(1+11.59%)^3+197400*(1+11.59%)^2+120700*(1+11.59%)^1+159000 =946160.4196
PV of Cash outflows =420300
MIRR =(FV of cash inflows/PV of cash outflows)^(1/n)-1 =(946160.4196/420300)^(1/5)-1 =17.62%

6D1. PV of Cash flows =190001/(1+14.37%)+169936/(1+14.37%)^2+175905/(1+14.37%)^3+173594/(1+14.37%)^4+178373/(1+14.37%)^5
=606236.6420
Initial Outlay =457779
PI =(PV of Cash flows /Initial Outlay)=(606236.6420/457779) =1.32