Question

7. The (net) cash flows of project X are shown below: Year (Net) Cash Flows ($) 0 -10,000 1 35,200 2 -29,751 a. What are the multiple internal rates of return of project X? (1 point) b. Draw the approximate NPV profile of project X. (1 point) c. Should this project be accepted if the cost of capital is 10%? Why? (0.5 point)

Answer 1

IRR= Where NPV of project is equal to zero

Year	Cash flow	PVF (41%)	PVCF
0	-10000	1	-10000
1	35200	0.7092199	24964.54
3	-29751	0.5029928	-14964.5
NPV			0

IRR = 41%

MIRR = FV of positive cash flows / PV of negative cash flows - 1

= 42592 / (10000 + 24587.6) - 1

= 1.109695 - 1

= 0.1097

NPV of project X

Year	Cash flow	PVF (10%)	PVCF
0	-10000	1	-10000
1	35200	0.9090909	32000
3	-29751	0.8264463	-24587.6
NPV			-2587.6

No, the project Should not be accepted if the cost of capital is 10% because the NPV of project is negative.