Question

A project has the following total (or net) cash flows.

__________________________________________

Year Total (or net) cash flow

_________________________________________

1 $20,000

2 30,000

3 50,000

4 60,000

_________________________________________

The required rate of return on the project is 15 percent. The
initial investment (or initial cost or initial outlay) of the
project is $80,000.

a) Find the net present value (NPV) of the project.

b) Find the profitability index (PI) of the project.

c) Calculate the modified internal rate of return (MIRR) of the
project.

Answer #1

Formulae

A project has the following total (or net) cash flows.
________________________________________
Year Total (or net)
cash flow
________________________________________
1 $50,000
2 70,000
3 80,000
4 100,000
_______________________________________
The required rate of return on the project is 13 percent. The
initial investment (or initial cost or initial outlay) of the
project is $100,000.
a) Find the (regular) payback period of the project.
b) Compute the discounted payback period of the project.

A project has the following total (or net) cash flows.
________________________________________
Year Total (or net)
cash flow
________________________________________
1 $50,000
2 70,000
3 80,000
4 100,000
_______________________________________
The required rate of return on the project is 13 percent. The
initial investment (or initial cost or initial outlay) of the
project is $100,000.
a) Find the (regular) payback period of the project.
b) Compute the discounted payback period of the project.

2. A company is considering a project that has the following
cash flows: C0 = -3,000, C1 = +900, C2 = +500, C3 = +1,100, and C4
= +1,900, with a risk-adjusted discount rate of 8%. A) Calculate
the Net Present Value (NPV), Internal Rate of Return (IRR),
Modified Internal Rate of Return (MIRR), and Profitability Index
(PI) of this project. B) If you were the manager of the firm, will
you accept or reject the project based on the...

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...

You are considering building a shopping mall. The initial
investment is ?$1.43. million. The cash flows are?$410,000
for year? 1,200,000 for year?2, $200,000 for year? 3, and
?$170,000 for year 4. What are the net present value? (NPV) and
profitability index? (PI) of the project if the cost of capital is
12?%? Compute the internal rate of return? (IRR) for the
project.

Telesis Corp is considering a project that has the
following cash flows:
Year
Cash Flow
0
-$1,000
1
400
2
300
3
500
4
400
The company’s weighted average cost of capital (WACC) is
10%. What are the project’s payback period (Payback), internal rate
of return (IRR), net present value (NPV), and profitability index
(PI)?
A.
Payback = 3.5, IRR = 10.22%, NPV = $1260, PI=1.26
B.
Payback = 2.6, IRR = 21.22%, NPV = $349, PI=1.35
C.
Payback =...

1. A project has an initial outlay of $1,732. The project will
generate annual cash flows of $783 over the 4-year life of the
project and terminal cash flows of $258 in the last year of the
project. If the required rate of return on the project is 4%, what
is the net present value (NPV) of the project? Note: Enter your
answer rounded off to two decimal points. Do not enter $ or comma
in the answer box.
2.A...

The IRR evaluation method assumes that cash flows from the
project are reinvested at the same rate equal to the IRR. However,
in reality the reinvested cash flows may not necessarily generate a
return equal to the IRR. Thus, the modified IRR approach makes a
more reasonable assumption other than the project’s IRR.
Consider the following situation:
Blue Llama Mining Company is analyzing a project that requires
an initial investment of $450,000. The project’s expected cash
flows are:
Year
Cash...

The profitability index (PI) of a project is 1.1, and the
initial investment (cost) is $10,000
. What do you know about the project's net present value (NPV)
and its internal rate of return (IRR)?

Your company is considering an
expansion into a new product line. The project cash flows are as
follows:
Year
Project A
0
-$60,000
1
44,000
2
20,000
3
14,000
The
required return for this project is 10%.
What is the NPV for the project?
What is the IRR for the project?
What...

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