Question

Project L requires an initial outlay at t = 0 of $64,425, its expected cash inflows are $11,000 per year for 11 years, and its WACC is 12%. What is the project's IRR? Round your answer to two decimal places.

_______ %

Project L requires an initial outlay at t = 0 of $35,000, its expected cash inflows are $12,000 per year for 9 years, and its WACC is 9%. What is the project's MIRR? Do not round intermediate calculations. Round your answer to two decimal places.

_______ %

Project L requires an initial outlay at t = 0 of $75,000, its expected cash inflows are $13,000 per year for 6 years, and its WACC is 13%. What is the project's payback? Round your answer to two decimal places.

_______ years.

Answer 1

a.Let irr be x%
At irr,present value of inflows=present value of outflows.

64,425=11,000/1.0x+11,000/1.0x^2+..............+11,000/1.0x^11

Hence x=irr=12.32%(Approx)

b.We use the formula:  
A=P(1+r/100)^n
where   
A=future value
P=present value  
r=rate of interest
n=time period.   

Future value of inflows=12000*(1.09)^8+12000*(1.09)^7+12000*(1.09)^6+12000*(1.09)^5+12000*(1.09)^4+12000*(1.09)^3+12000*(1.09)^2+12000*(1.09)+12000

=156252.437

MIRR=[Future value of inflows/Present value of outflows]^(1/time period)-1

=[156252.437/35000]^(1/9)-1

=18.09%(Approx)

c.Payback period=initial cost/annual cash flows

=75000/13000

=5.77 years(Approx)