Question

Cremona Company is considering a project that has the following cash flow and WACC data. What is the project’s Discounted payback, NPV, and MIRR? Weighted Average Cost of Capital (WACC) of Cremona Company is 12%

Year	CF
0	(1,000,000)
1	350,000
2	600,000
3	200,000
4	350,000
5	300,000

Answer 1

Calculating the NPV and Discounted Payback Period of Project:-

Year	PV Factor @12.00% (a)	Cash Flows of Project ($) (b)	Present Value of Cash Flows of Project ($) [(a)*(b)]	Cummulative Present value of Cash Flows of Project ($)
0	1.0000	(1,000,000.00)	(1,000,000.00)	(1,000,000.00)
1	0.8929	350,000.00	312,500.00	(687,500.00)
2	0.7972	600,000.00	478,316.33	(209,183.67)
3	0.7118	200,000.00	142,356.05	(66,827.62)
4	0.6355	350,000.00	222,431.33	155,603.70
5	0.5674	300,000.00	170,228.06	325,831.76
		800,000.00	325,831.76

So, NPV of the Project is $325,831.76

- Discounted Payback Period = Years before the Discounted Payback period occurs + (Cummulative cash flow in the year before recovery/Discounted Cash flow in the year before recovery)

Discounted Payback Period = 3 years + (66,827.62/222,431.33)

Discounted Payback Period of Project = 3.30 years

- Calculating MIRR of project using Excel "MIRR" function:-

So, MIRR of Project is 18.50%

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