Question

a. Project L costs $42,220.68, its expected cash inflows are $9,000 per year for 11 years, and its WACC is 12%. What is the project's IRR? Round your answer to two decimal places.

b.Project L costs $45,000, its expected cash inflows are $13,000 per year for 8 years, and its WACC is 14%. What is the project's MIRR? Round your answer to two decimal places. Do not round your intermediate calculations.

c. Project L costs $70,000, its expected cash inflows are $15,000 per year for 8 years, and its WACC is 13%. What is the project's payback? Round your answer to two decimal places.

Answer 1

a.Let irr be x%
At irr,present value of inflows=present value of outflows.

42,220.68=9000/1.0x+9000/1.0x^2+..............+9000/1.0x^11

Hence x=irr=17.8%(Approx).

b.Future value of annuity=Annuity[(1+rate)^time period-1]/rate

13000[(1.14)^8-1]/0.14

=$13000*13.23276016

=$172025.8821

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

=[$172025.8821/45000]^(1/8)-1

=18.25%(Approx).

c.Payback period=initial investment/annual cash flows

=(70000/15000)

=4.67 years(Approx).