Question

1. What's the internal rate of return of the following cash flows with a 8% WACC?...

1. What's the internal rate of return of the following cash flows with a 8% WACC?

2. What's the modified internal rate of return of the following cash flows with a 8% WACC?

Year 0 = 100,000

Year 1 = 10,000

Year 2 = 50,000

Year 3 = 45,000

Year 4 = 25,000

3. How long should a company keep the following project?

WACC = 8%

CF year 0 = 1,500,000

Salvage = 1,500,000

CF year 1 = 750,000

Salvage = 1,250,000

CF year 2 = 600,000

Salvage - 425,000

CF year 3 = 800,000

Salvage = 0.00

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Answer #1

Formulas used:-

IRR =IRR(C4:C8)
MIRR =MIRR(C4:C8,B2,B2)
Value of the project if Disposed off in Year 1 =PV(8%,1,-750000,-1250000)-1500000
Value of the project if Disposed off in Year 2 =1025000/(1.08)^2+750000/1.08-1500000
Value of the project if Disposed off in Year 3 =800000/1.08^3+600000/1.08^2+750000/1.08-1500000
We should Disposed it Off in Year 1
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