What function would you use to solve each of the following? The choices are: NPV

Question

What function would you use to solve each of the following? The choices are: NPV, IRR, and MIRR. 4. You know all the cash flows from periods 1 - n (n the end). The cash flows are unequal. You also know what rate of return you would like to make on the investment. You want to know what is the most you could pay for the investment for it to yield your required rate of return. Answer: You know the term (length) of the investment, the interest rate, the amount of the initial investment, and the periodic payments, which are equal. You want to know what the investment will be worth at the end of the holding period. Answer You know all the cash flows from periods 0- n. The cash flows are unequal. Some of the cash flows are positive and some are zero, but you want to keep all your money invested, so you also have an idea of what you could earn on reinvested money. There are no negative cash flows during the holding period (periods 1-n). You wonder what your return on investment would be. You would use:

Explanation / Answer

1) IRR

2) NPV

3) MIRR

Modified internal rate of return (MIRR) assumes that positive cash flows are reinvested at the firm's cost of capital, and the initial outlays are financed at the firm's financing cost. By contrast, the traditional internal rate of return (IRR) assumes the cash flows from a project are reinvested at the IRR.

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