Compute the (a) net present value, (b) internal rate of return (IRR), (c) modifi

Question

Compute the (a) net present value, (b) internal rate of return (IRR), (c) modified internal rate of return (MIRR), and (d) discounted payback period (DPB) for each of the following projects. The firm's required rate of return is 13 percent. Year Project AB Project LM Project UV 0 $(90,000) S(100,000) S (96,500) 1 39,000 0 (55,000) 2 39,000 0 100,000 3 39,000 147,500 100,000 Which project(s) should be purchased if they are independent? Which project(s) should be pur- chased it they are mutually exclusive?

Explanation / Answer

NPV of project AB= (39,000 X 2.361) - 90,000= $2,079

IRR= 90,000/ 39,000= 2.307, it can be at in between 14 and 15%

NPV of project LM= (147,500X 0.693) - 100,000= $2,224

NPV of project UV= 100,000X 1.476 (96500 + 55,000X 0.885)= $2425

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