Question

Project Z has a cost of $1.5 million to start up (i.e., at time t=0), and is expected to produce a uniform cash flow stream for 8 years (i.e., the cash flows are expected to be the same in years t=1 through t=8). Project Z’s IRR is 13.5%, while it’s cost of capital is 11.25%. Find project Z’s NPV and its MIRR.

please show all the fraction numbers and be easy to follow

Answer 1

Initial Cost =1500000
Number of years of cash flow =8 years
IRR =13.5%
To calculate cash flows from year 1 to year 8(PMT)
Using Financial Calculator
I/Y =13.5%;N=8;PV=-1500000;CPT PMT =317949.1652

NPV of Project =PV of Cash Flows -Initial Investment =PMT*((1-(1+r)^-n)/r)-Initial Investment
=317949.1652*((1-(1+11.25%)^-8)/11.25%)-1500000=121719.78

FV of Cash Flows =PMT*((1+r)^n-1)/r) =317949*((1+11.25%)^8-1)/11.25%)=3805184.7309
MIRR =(FV of Cash Flows/PV of Cash Flows)^(1/n)-1 =(3805184.7309/1500000)^(1/8)-1=12.34%