1. Use the cash flow given below and a MARR = 12% to find the following: Year 0
ID: 2742196 • Letter: 1
Question
1. Use the cash flow given below and a MARR = 12% to find the following:
Year
0
1
2
3
4
5
Net Cash Flow, $
+160,000
-32,000
-20,000
-70,000
-700
-8,000
a. Determine the number of possible rate of return values in the net cash flow series using the two sign tests.
b. Find the rate of return values with excel using interest between -30 and 130% and plot your results
c. Determine the external rate of return, using the modified rate of return approach with an investment rate 5% and a borrowing rate of 7%. Solve problem using excel.
Year
0
1
2
3
4
5
Net Cash Flow, $
+160,000
-32,000
-20,000
-70,000
-700
-8,000
Explanation / Answer
The NPV for this is equated to 0 = cash flow/(1+MARR)^n where n= time of cash flow
The rate of return for this is
=160,000+(-32000/(1+x)^1)+(-20000/(1+x)^2)+(-70000/(1+x)^3)+(-700/(1+x)^4)+(-8000/(1+x)^5)
solving for x we get no values for x
c)use MIRR in excel
=MIRR(cash flows, finance rate,reinvestment rate)
finance rate=7%
reinvestment rate=5%
=MIRR(cash flows,7%,5%)
=13.02%
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