Slow Ride Corp. is evaluating a project with the following cash flows: Year Cash
ID: 2763867 • Letter: S
Question
Slow Ride Corp. is evaluating a project with the following cash flows: Year Cash Flow 0 –$ 29,400 1 11,600 2 14,300 3 16,200 4 13,300 5 – 9,800 The company uses an interest rate of 8 percent on all of its projects. Calculate the MIRR of the project using the discounting approach method. (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) MIRR % Calculate the MIRR of the project using the reinvestment approach method. (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) MIRR % Calculate the MIRR of the project using the combination approach method. (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) MIRR %
Explanation / Answer
1) In discounting approach negative cash flows are discounted to Present and IRR is calculated
CF0 = -29400-9800/(1+0.08)^5
=-36069.715
2) In reinvestment approach, all positive cash flows are projected to last period and IRR is calculated
CF5 = -9800+13300*(1+0.08)^1+16200*(1+0.08)^2+14300*(1+0.08)^3+11600*(1+0.08)^4
=57255.233
3) In combination approach positive cashflows are projected to last year and negative cash flows discounted to present
CF0 = -29400-9800/(1+0.08)^5
=-36069.715
CF5 +13300*(1+0.08)^1+16200*(1+0.08)^2+14300*(1+0.08)^3+11600*(1+0.08)^4
=67055.233
IRR= 19.03% Year 0 1 2 3 4 5 Cash flow stream -36069.71533 11600 14300 16200 13300 0 Discounting factor 1 1.19031 1.41683 1.686462 2.007407 2.38943 Discounted cash flows project -36069.71533 9745.39 10092.96 9605.909 6625.463 0 NPV = Sum of discounted cash flows NPV XYZ = -1.69435E-05 Discounting factor = (1 + discount rate)^(CORRESPONDING PERIOD IN YEARS) Discounted Cashflow= Cash flow stream/discounting factorRelated Questions
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