Question

6C5

Tall Trees, Inc. is using the modified internal rate of return (MIRR) when evaluating projects. The company is able to reinvest cash flows received from the project at an annual rate of 12.33 percent. What is the MIRR of a project if the initial costs are $1,415,400 and the project life is estimated as 9 years? The project will produce the same after-tax cash inflows of 570,900 per year at the end of the year.

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

Your Answer:

6D2

Gold Mining, Inc. is using the profitability index (PI) when evaluating projects. Gold Mining’s cost of capital is 6.70 percent. What is the PI of a project if the initial costs are $1,357,491 and the project life is estimated as 8 years? The project will produce the same after-tax cash inflows of $539,597 per year at the end of the year.

Round the answer to two decimal places.

6A1

FIND THE PAYBACK PERIOOD FOR FOLLOWING PROJECT:

	PROJECT X
INITIAL OUTLAY	8630
YR1	3370
YR2	3390
YR3	3510
YR4	7270

Answer 1

6C5. Initial Cost(PV)=1415400
Rate =12.33%
Number of years =9
Annual cash flows or PMT =570900
FV of Cash inflows using annuity formula =PMT*((1+r)^n-1)/r) =570900*((1+12.33%)^9-1)/12.33%) =8554181.8940
MIRR =(FV of Cash inflows/Initial Investment)^(1/n)-1 =(8554181.8940/1415400)^(1/9)-1 =22.13%


6D2. Annual cash flows or PMT =539597
Rate =6.7%
Number of Years =8
PV of Cash Flows =PMT*(((1-(1+r)^-n)/r) =539597*(((1-(1+6.7%)^-8)/6.7%) =3259892.5576
PI =PV of Cash Flows/Initial Investment =3259892.5576/1357491 =2.40

6A1. Payback period formula = Years before recovery + Cost not covered in that year/ Cash flow for that year
=2+(8630-3370-3390)/3510=2.53 years