1) Compute the internal rate of return for the following cash flows: Period 0: -
ID: 2735496 • Letter: 1
Question
1) Compute the internal rate of return for the following cash flows:
Period 0: -1900
Period 1: 1100
Period 2: 800
Period 3: 500
Enter your answer in percent and round to the nearest 0.01.
2) Compute the modified internal rate of return for the following cash flows using a discount rate of 11.0%:
Period 0: -1684.0
Period 1: 767.0
Period 2: 782.0
Period 3: 724.0
Enter your answer in percent and round to the nearest 0.01%.
3) Machinery costs $1 million today and $100,000 per year to operate. It lasts for 14.0 years. What is the equivalent annual annuity if the discount rate is 8.0%? Enter your answer in dollars and round to the cent. Remember that costs are negative cash flows; so, include the negative sign.
Explanation / Answer
1) IRR Year cash flows pvif @ 10% PV pvif @ 15% PV 0 -1900 1.0000 1.0000 1 1100 0.9091 1000 0.8696 957 2 800 0.8264 661 0.7561 605 3 500 0.7513 376 0.6575 329 2037 1890 IRR = 10 + 5* (2037-1900)/(2037-1890) 14.66 % 2) MIRR Year cash flows fvif @ 11% PV 0 -1684 1 767 1.2321 945 2 782 1.1100 868 3 724 1.0000 724 2537 MIRR = 3(2537/1684) - 1 = 14.64% 3) Equivalent annual cost: The equivalent annual cost = 100000 + 1000000/pvifa(8,14) = 100000 + 1000000/8.2442 = -$221,297.40
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