Question

 

Consider the below estimated cash flows for Project A. Assume the cost of capital is 8%.

Year	Project A
0	($30,000)
1	$8,000
2	$9,000
3	$7,000
4	$10,000

8. Find the net present value (NPV) of Project A’s projected cash flows.

a.	$4,000
b.	($3,200)
c.	($1,824)
d.	$1,754
e.	($1,969)

9. Find the Internal Rate of Return (IRR) Project A’s projected cash flows.

a.	13.3%
b.	8.0%
c.	6.3%
d.	5.1%
e.	There is not enough information to answer this question

10. Find the Profitability Index (PI) of Project A’s projected cash flows.

a.	0.07
b.	0.93
c.	1.13
d.	0.73
e.	-0.93

11. Find the Modified Internal Rate of Return (MIRR) for Project A’s projected cash flows.

a.	13.3%
b.	8.0%
c.	6.2%
d.	5.1%
e.	3.5%

Answer 1

Answer - 8
Correct Answer is option E

Year	Cash flow	Pv of cash flow
0	-30000	Rs. -30,000
1	8000	Rs. 7,407
2	9000	Rs. 7,716
3	7000	Rs. 5,557
4	10000	Rs. 7,350
	NPV	Rs. -1,969

Answer -9
Correct Answer is option D

Year	Cash flow
0	-30000
1	8000
2	9000
3	7000
4	10000
IRR	5.1%

Correct Answer 10 is option E
PI = -0.93
Profitability Index = Inflow / Outflow
PI = 28030/ 30000
PI =0.93
Option E is because it cannot recovered the initial investment itself

Answer 12
Correct Option is C
in this case reinvestment and finance rate is same
or calculate MIRR in excel by formula -
=MIRR(values, finance_ rate,reinvest_rate,
MIRR = 6.2%

Year	Cash flow
0	-30000
1	8000
2	9000
3	7000
4	10000
MIRR	6.2%