Suppose your firm is considering investing in a project with the cash flows show
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Question
Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 9 percent, and that the maximum allowable payback and discounted payback statistics for the project are 3.5 and 4.5 years, respectively.
Use the MIRR decision rule to evaluate this project. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)
Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 9 percent, and that the maximum allowable payback and discounted payback statistics for the project are 3.5 and 4.5 years, respectively.
Explanation / Answer
Here both the payback period and discounted payback period is more than acceptable periods so this project is not good to invest
Year Amount P V Factor @ 9% Discounted Inflow Present Value Cash outflow 0 15300 1 15300.00 Cumulative value Discounted Cumulative value Cash inflow 1 3100 3100 0.92 2844.04 2844.04 2844.04 Cash inflow 2 4300 7400 0.84 3619.22 6463.26 3619.22 Cash inflow 3 3500 10900 0.77 2702.64 9165.90 2702.64 Cash inflow 4 3500 14400 0.71 2479.49 11645.39 2479.49 Cash inflow 5 3300 17700 0.65 2144.77 13790.16 2144.77 Cash inflow 6 3100 20800 0.60 1848.43 15638.59 1848.43 338.59 Pay Back Period Discounted Pay Back Period Cash outflow = 15300 Cash outflow = 15300 As 13790.16 cover in 5 years so 5 years complete As 14400 cover in 4 years so 4 years complete 1509.84/1848.43*12 9.80 600/3300*12 = 2.18 4 years complete and 9.80 months 4 years complete and 2.18 monthsRelated Questions
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