1.Dunder Mifflin Paper Company is considering purchasing a new stamping machine
ID: 2651819 • Letter: 1
Question
1.Dunder Mifflin Paper Company is considering purchasing a new stamping machine that costs $400,000. This new machine will produce cash inflows of $100,000 each year at the end of years 1 through 5, then at the end of year 7 there will be a cash outflow of $250,000. The company has a weighted average cost of capital of 11% ( use this as the reinvestment rate), What is the MIRR of the investment?
2. Artie's Wrestling Stuff is considering building a new plant. This plant would require an initial cash outlay of $8 million and will generate annual free cash inflows of $1 million per year for 8 years. Calculate the project's MIRR given:A) A required rate of return of 10% B) A required rate of return of 13% C) A required rate of return of 14%
3. Calculate the MIRR given the following casg flows if the appropriate required rate of return is 12%(use this as the investment rate)
4. You are considering a project with the following cash flows:
If the appropriate discount rate is 8%, what is the projects discounted payback period?
5. Your investment advisor has offered you an investment that will provide you with one cash flow of $152,000 at the end of 35 years if you pay premiums of $250 per year at the end of each year for 35 years. Find the internal rate of return on this investment.
Year Cash Flow 0 -40000 1 35000 2 35000 3 35000 4 -35000 5 35000 6 35000Explanation / Answer
Answer No. 4
Figures in $
Year
Cash inflow
Disc Rate - 8%
Disc. Cash inflow
Cumulative Disc. cash inflow
A
B
A*B
1
25000
0.93
23148.15
23148.15
2
25000
0.86
21433.47
44581.62
3
25000
0.79
19845.81
64427.42
4
25000
0.74
18375.75
Discounted cash inflow
82803.171
Project’s initial investment is $ 60,000. So payback period is period by which initial investment is recovered (i.e. $ 60,000). In Discounted payback period, Cash flows for future periods are discounted to find its present value. Here cumulative discounted cash flow at year 2 end is $ 44581.62 and cumulative discounted cash flow at year 3 end is $ 64427.42. So payback period is between 2 years and 3 years.
Particulars
Amount
Cumulative cash inflow at year 2 end
a
44581.62
Cash outflow at Zear 0
b
60000
Difference ( b-a)
c
15418.38
Cash inflow for year 3
d
19845.81
Period in years (c/d)
0.78
Answer: So Project’s discounted payback period is 2.78 years ( 2 years + 0.78 years)
Figures in $
Year
Cash inflow
Disc Rate - 8%
Disc. Cash inflow
Cumulative Disc. cash inflow
A
B
A*B
1
25000
0.93
23148.15
23148.15
2
25000
0.86
21433.47
44581.62
3
25000
0.79
19845.81
64427.42
4
25000
0.74
18375.75
Discounted cash inflow
82803.171
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