PV Year Cash Flow Cash Flows 1 $14,000 $12,726 2 $14,000 $11,564 3 $10,000 $7,51
ID: 2718331 • Letter: P
Question
PV
Year
Cash Flow
Cash Flows
1
$14,000
$12,726
2
$14,000
$11,564
3
$10,000
$7,510
4
$10,000
$6,830
5
$8,000
$4,968
A) What is the NPV of above project if the initial investment was $35,000?
B) Calculate the IRR of the project assuming an initial investment of $35,000.
C) Calculate the MIRR of the project, respectively, assuming a cost of capital of 10% and an initial investment of $35,000.
SHOW ALL WORK. ANSWER ALL PARTS
PV
Year
Cash Flow
Cash Flows
1
$14,000
$12,726
2
$14,000
$11,564
3
$10,000
$7,510
4
$10,000
$6,830
5
$8,000
$4,968
Explanation / Answer
Part A)
NPV of the project is the different between the cash inflows and cash outflows of the project. The formula for calculating NPV is given below:
NPV = -Initial Investment + Sum of Discounted Cash Inflows
___________
Using the values provided in the question, we get,
NPV = -35,000 + (12726 + 11,564 + 7,510+ 6,830 + 4,968) = $8,598
___________
Part B)
IRR can be calculated with the use of IRR function of EXCEL/Financial Calculator. IRR is the minimum acceptable rate of return at which NPV is 0. The basic formula for calculating NPV is:
NPV = 0 = Cash Flow Year 0 + Cash Flow Year 1/(1+IRR)^1 + Cash Flow Year 2/(1+IRR)^2 + Cash Flow Year 3/(1+IRR)^3 + Cash Flow Year 4/(1+IRR)^4 + Cash Flow Year 1/(1+IRR)^5
___________
IRR has been calculated with the use of EXCEL as follows:
IRR = 9.36%
___________
Part C)
MIRR can be calculated with the use of MIRR function of EXCEL which is MIRR(Cash Flows, finance_rate,reinvestment rate). Here, reinvestment_rate is 10% and finance_rate is 0.
___________
IRR has been calculated with the use of EXCEL as follows:
MIRR = 9.70%
Year Cash Flow 0 -35,000 1 12,726 2 11,564 3 7,510 4 6,830 5 4,968 IRR = IRR(-35000,12726,11564,7510,6830,4968) = 9.36%Related Questions
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