1. Calculate the NPV for the following projects if the annual discount rate is 7
ID: 2705736 • Letter: 1
Question
1. Calculate the NPV for the following projects if the annual discount rate is 7%:
Year
A
B
C
0
-10000
-13000
-15000
1
5000
5000
7000
2
6000
2000
2000
3
7000
6000
1000
4
2000
1000
5000
5
1000
7000
6000
2. Which projects will the firm accept if the payback period is three years? Which projects will the firm accept if the discounted payback period is three years? (Show math)
3. What is the IRR for each of the three projects?
4. What is the MIRR for each of the three projects?
Year
A
B
C
0
-10000
-13000
-15000
1
5000
5000
7000
2
6000
2000
2000
3
7000
6000
1000
4
2000
1000
5000
5
1000
7000
6000
Explanation / Answer
1)
NPV
for project A it is -10000+5000/1.07 +6000/(1.07^2) + 7000/(1.07^3) + 2000/(1.07^4) + 1000/(1.07^5) =7866
for project B -13000+5000/1.07 +2000/(1.07^2) + 6000/(1.07^3) + 1000/(1.07^4) + 7000/(1.07^5)= 4071
for project C -15000+7000/1.07 +2000/(1.07^2) + 1000/(1.07^3) + 5000/(1.07^4) + 6000/(1.07^5) =2198
2)if the payback period is 3 yrs
for project A value obtained = -10000+5000+6000+7000=8000
for project B it is =-13000+5000+2000+6000=0
for project C it is = -18k+7k+2k+1k=-8k
firm will accept project A
if discounted payback period is three years
for project A value obtained = -10000+5000/1.07 +6000/(1.07^2) + 7000/(1.07^3)=5267
for project B it is =-13000+5000/1.07 +2000/(1.07^2) + 6000/(1.07^3)=-1682
for project C it is = -15000+7000/1.07 +2000/(1.07^2) + 1000/(1.07^3)=-5894
3)IRR for project A=39.25%
for B = 16.67%
for C = 12.38%
4)to calculate MIRR let the positive cash flows are reinvested at 10%
then MIRR forA =1.08%
for B =1.04%
for C=1.02%
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