Project Y costs $50,000, its expected cash inflows are as follows-- year 1: $19,000; year 2: $20,000; year 3: $18,000; year 4: $19,000; year 5 $20,000; year 6: $17,000, and its WACC is 7%.
a. What is the project's NPV?
b. What is the project's IRR?
c. What is the project's MIRR?
d. What is the project's Payback Period?
e. What is the project's Discounted Payback?

Question

17-08-2020
Business

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Project Y costs $50,000, its expected cash inflows are as follows-- year 1: $19,000; year 2: $20,000; year 3: $18,000; year 4: $19,000; year 5 $20,000; year 6: $17,000, and its WACC is 7%.
a. What is the project's NPV?
b. What is the project's IRR?
c. What is the project's MIRR?
d. What is the project's Payback Period?
e. What is the project's Discounted Payback?

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Zviko Zviko · Answer 1 · 2020-08-19T04:29:13+02:00

Answer:

a. $40,001.70

b. 30.19 %

c. 18,01% .

d. 2 years and 7 months

e. 3 years

Explanation:

Calculation of NPV using a financial calculator :

-$50,000 CFj

$19,000 CFj

$20,000 CFj

$18,000 CFj

$19,000 CFj

$20,000 CFj

$17,000 CFj

i/yr 7%

Shift NPV $40,001.70

Calculation of IRR using a financial calculator :

-$50,000 CFj

$19,000 CFj

$20,000 CFj

$18,000 CFj

$19,000 CFj

$20,000 CFj

$17,000 CFj

Shift IRR 30.19 %

Calculation of MIIR :

The First Step is to Calculate the Terminal Value at end of year 6.

Terminal Value (FV) = Sum of (PV x (1 + r) ^ 6 - n)

=$19,000 x (1.07) ^ 5 + $20,000 x (1.07) ^ 4 + $18,000 x (1.07) ^ 3 + $19,000 x (1.07) ^ 2 + $20,000 x (1.07) ^ 1 + $17,000 x (1.07) ^ 0

= $26,648.48 + $26,215.92 + $22,050.77 + $21,753.10 + $21,400 + $17,000

= $135,068.27

The Next Step is to Calculate the MIRR using a Financial Calculator :

-$50,000 CFj

0 CFj

$135,068.27 CFj

Shift IRR/Yr 18,01%

Therefore, the MIRR is 18,01% .

Calculation of the Payback Period :

$50,000 = Year 1 ($19,000) + Year 2 ($20,000) + $11,000 / $18,000

= 2 years and 7 months

Calculation of the project's Discounted Payback :

$50,000 = $19,000 / (1.07)^1 + $20,000 / (1.07)^2 + $18,000/ (1.07)^3 + $19,000/ (1.07)^4

= Year 1 ($17,757.01) + Year 2 ($17,468.77) + Year 3 ($14,693.36) + $80.83 / $14,495

= 3 years