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In: Finance

Dell is evaluating a project which has the initial cost of $10,000 and generates the following...

Dell is evaluating a project which has the initial cost of $10,000 and generates the following cash flow/

Year 1 2 3 4 5
Cash Flow 5,000 3,000 4,000 8,000 10,000

The firm's cost of capital is 10%. Calculate NPV, PI, IRR, MIRR, discounted payback, and payback period

Solutions

Expert Solution

The initial cost of the project is $10,000 and the cost of capital is 10%.

1. NPV calculation

NPV can be calculated using NPV function in excel.

Formulas used are as follows:

The formulas used are as follows:

The project has a positive NPV, so it should be accepted.

2. Profitability Index

PI can be calculated using the formula= PV of future cash flows/Initial investment

Formulas used are as follows:

PI is higher than 1, which means that discounted future cash inflows are higher than discounted cash outflows.

3. IRR calculation

IRR can be calculated using IRR function in excel.

Formulas used are as follows:

4. MIRR calculation

MIRR can be calculated using MIRR function in Excel. The investment rate is not mentioned in the question, so we can assume that the cost of capital is the reinvestment rate.

Formulas used are as follows:

5. Discount payback period

Formulas used:

6. Payback period

Formulas used:

jeff jeffy answered 2 years ago
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