EXAM 4 [Ch 11,12.14&16 Question 34 (of 34) 367 points Problem 12-21 Modified int

Question

EXAM 4 [Ch 11,12.14&16 Question 34 (of 34) 367 points Problem 12-21 Modified internal rate of return IL04] The Cafeine Coffee Company uses the modified internal rate of return. The firm has a cost of capitat of 8 percent. The project being analyzed is as follows ($40,000 investmenty: Use Appendix A and Appendix B for an approximate answer but calculate your final answer using the formula and financial caculator methods $ 20,000 15,000 8,000 a. What is the modified internal rate of return? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Hint

Explanation / Answer

To determine the modified internal rate of return we need to calculate yield on the investment

PVIF = PV / FV = $40,000 / $47,528

Period of Growth FV Factor Future Value year 1 $ 20,000 2 1.1664 $23,328 Year 2 $ 15,000 1 1.08 $16,200 Year 3 $    8,000 0 1 $8,000 Terminal Value $47,528

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