Suppose your firm is considering investing in a project with the cash flows show

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 12 percent, and that the maximum allowable payback and discounted payback statistics for your company are 3 and 3.5 years, respectively. Time: 0 1 2 3 4 5 Cash flow –$295,000 $45,800 $64,000 $101,000 $102,000 $61,200 Use the MIRR decision rule to evaluate this project. (Do not round intermediate calculations. Round your final answer to 2 decimal places.) MIRR % Should it be accepted or rejected? Accepted Rejected

Explanation / Answer

NPV is negative hence the project should not be accepted

Particulars Year Cash Flows PVF @ 12% PV Cash Flows 0 -295000              1.00 -2,95,000.00 Cash Flows 1 45800              0.89        40,892.86 Cash Flows 2 64000              0.80        51,020.41 Cash Flows 3 101000              0.71        71,889.81 Cash Flows 4 102000              0.64        64,822.84 Cash Flows 5 61200              0.57        34,726.52 Net Present Value      -31,647.56

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