As a separate and unrelated project, a friend of yours is considering sponsoring

Question

As a separate and unrelated project, a friend of yours is considering sponsoring a pavilion at the upcoming World's Fair. The pavilion would cost $400,000, and it is expected to result in $2.5 million of incremental cash inflows during its one year of operation. However, it would then take another year, and $2.5 million of costs, to demolish the site and return to its original condition. Thus, Project P's expected net cash flows look like this (in millions of dollars):

The project is estimated to be of average risk, so its cost of capital is 10 percent.

1) What is Project P's NPV, What is its IRR? Its MIRR?

Chegg, please show the formulas for NPV, IRR, MIRR and the numbers you plugged into the formulas. Please show work (step by step). The more work you show, it will help me understand the problem more clearly. I need to answer this question for a take home final exam. It is important to me, so I would appreciate any help. Thanks in advance.

My professor says that the formula for NPV is:

NPV = -cost + NCF [1 - 1/cocn /coc]

Note: NCF is (net cash flow) & coc is (cost of capital)

The formula for IRR is:

NPV = 0 = -cost + NCF [1 - 1 / (1 + IRR)n / IRR]

Please try to use these formulas if you can. I don't know the formula for MIRR

Year Net Cash Flows 0 ($0.4) or -0.4 1 2.5 2 (2.5) or -2.5

Explanation / Answer

Solution.

Calculation of NPV.

NPV = $193,388.43

2. Calculation of IRR.

Using excell for IRR.

Year Cash flow Table Value PV 0                   (0.40)           1.00000                (0.40) 1                     2.50           0.90900                   2.27 2                   (2.50)           0.82640                (2.07) NPV            (0.1935)

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