Question

In: Finance

Consider the following project: Machine A ($10,000) Inflows Year 1 $4,500 Year 2 4,500 Year 3...

Consider the following project:

Machine A ($10,000)
Inflows
Year 1 $4,500
Year 2 4,500
Year 3 4,500

The IRR for this project is (Write your answer with 2 decimal and as a percentage):

（ ？ ）Given that the firm's cost of capital is 12%, the MIRR for this project is (Write your answer with 2 decimal and as a percentage) （ ？ ）

Solutions

Expert Solution

The IRR is the discount rate that makes the present value of cash inflows equal to the initial investment.

In the above equation, the value of r is the internal rate of return. It is found by trial and error method.

Let r = 15%

The present value of cash inflows = $10274.51303 ( Higher than $10000)

Let r = 16%

The present value of cash inflows = $ 10106.50293 ( Higher than $10000)

Let r = 17%

The present value of cash inflows = $ 9943.13233 ( Lesser than $ 10000)

IRR is between 16% and 17%

IRR = 16.65%

-------------------------------------------------------------------------------------

The MIRR is calculated using the following equation

If the cash inflows are reinvested at the firm's cost of capital, the terminal value is found to be

MIRR = 14.94%

jeff jeffy answered 2 years ago
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