A project has an initial cost of $52,125, expected net cash inflows of $12,000 p

Question

A project has an initial cost of $52,125, expected net cash inflows of $12,000 per year for 8 years and a cost of capital (discount rate) of 12%.

1) What is the project's NPV? Use table below to solve

=> NPV = ?

2) What is the project's IRR? Use table below to solve

3) What is the project's MIRR, assuming that interim cash flows can be reinvested at a rate of 3%

To Calculate Terminal Value:

Taking the TV and calculating MIRR:

4) What is the project's profitability index?

5) What is the project's payback period? (in years)

6) What is the project's discounted payback period? (in years)

Hint: Use table below

N I PV PMT FV ? ? ? ? ?

=> NPV = ?

2) What is the project's IRR? Use table below to solve

Explanation / Answer

MIRR = ((Sum of future value of cashflows/initial investment outlay)^(1/life of project) – 1)*100

Compounding factor = (1 + discount rate)^(Life of project – corresponding time of cashflow)

Future value of cash flow = Cash flow value * compounding factor

4) PI = (sum of discounted cash flows + initial investment outlay)/ initial investment outlay = (7486.677+52125)/52125=1.143629

5) & 6)

Payback period is the time by which undiscounted cashflow cover the intial investment outlay

this is happening between year 4 and 5

there fore payback period = 4 + 4125/12000= 4.34375 years

Discounted payback period is the time by which discounted cashflow cover the intial investment outlay

this is happening between year 6 and 7

there fore discounted payback period = 6 + 2788.11/5428.191 = 6.513635 years

Discount rate =   12.000% Compounding rate= 3.000% Year 0 1 2 3 4 5 6 7 8 Cash flow stream -52125 12000 12000 12000 12000 12000 12000 12000 12000 Discounting factor 1 1.12 1.2544 1.404928 1.573519 1.762342 1.973823 2.210681 2.475963 Discounted cash flows project -52125 10714.29 9566.327 8541.363 7626.217 6809.122 6079.573 5428.191 4846.599 Sum of discounted future cashflows = 7486.677 =NPV Discounting factor = (1 + Required rate)^(CORRESPONDING PERIOD IN YEARS) Discounted Cashflow= Cash flow stream/discounting factor Compounding factor= 1.229874 1.194052 1.159274 1.125509 1.092727 1.0609 1.03 1 FV of cash flows= 14758.49 14328.63 13911.29 13506.11 13112.72 12730.8 12360 12000 Sum of FV of cash flows(TV)= 106708 MIRR= 9.368909

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