As a separate and unrelated project, a friend of yours is considering sponsoring
ID: 2737705 • Letter: A
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 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):
Year Net Cash Flows
0 ($0.4)
1 2.5
2 (2.5)
The project is estimated to be of average risk, so its cost of capital is 10 percent.
(1) What is Project P’s NPV?
(2) What is its IRR?
(3) Its MIRR?
Chegg, I need help with these 3 questions. I know that the NPV for Project P is -193,388.45 or 193,388.45. I don't know if the answer is negative or positive. I'm not sure if the IRR is 13.65% or if project P has multiple IRRs. I know that the MIRR is 5.6% because I found it on microsoft excel.
What formulas can I use to find NPV, IRR, and MIRR. Please let me know if my answers are correct and provide me with the formulas and steps that can get me the answers that I have written above. I do not want any charts or answers from Microsoft Excel. I want to know the steps to finding these answers. I need this for a take home exam, so I would appreciate any help. Thanks in advance.
Explanation / Answer
Answer:(1) NPV= -193,388.45
NPV=-$400,000+2500000*PVIF(10%,1)+(-2500000)*PVIF(10%,2)
=-400000+2500000*0.9090909090-2500000*0.82644628
=-400000+2272727.25-2066115.70
=-193388.45
PVIF (10%,1)=1/(1.10)^1=0.90909090
PVIF (10%,2)=1/(1.10)^2=0.82644628
Answer:(2) Project P has multiple IRRs.
=IRR(values)
you will get 25%.
Answer:(3)
Formula=equalMIRR(values,10%,10%)
We can find the NPV by entering the cash flows into the cash flow register, entering I/YR = 10, and then pressing the NPV button. However, calculating the IRR presents a problem. With the cash flows in the register, press the IRR button. An HP-10BII financial calculator will give the message “error-soln.” This means that Project P has multiple IRRs. An HP-17BII will ask for a guess. If you guess 10%, the calculator will show IRR = 25%. If you guess a high number, such as 200%, it will show the second IRR, 400%. The MIRR of Project P = 5.6%, and is found by calculating the discount rate .
Discount rate 10% Year Cash Flow ($) 0 -400000 1 2500000 2 -2500000 NPV -193388.45Related Questions
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