Your uncle borrows $60,000 from the bank at 10 percent interest over the seven-y

Question

Your uncle borrows $60,000 from the bank at 10 percent interest over the seven-year life of the loan. Use Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. What equal annual payments must be made to discharge the loan, plus pay the bank its required rate of interest? (Do not round intermediate calculations. Round your final answer to 2 decimal places.) How much of his first payment will be applied to interest? To principal? (Do not round intermediate calculations. Round your final answers to 2 decimal places.) How much of his second payment will be applied to each? (Do not round intermediate calculations. Round your final answers to 2 decimal places.)

Explanation / Answer

                          11,31,350

MIRR =n square root of terminal value of cash inflow/Pv of cash outflow -1

=3 square root of 31131350/2225000 -1

=-13.16%

ignore the project.

A typical firms's IRR will be greater than its MIRR

Year Inflow Cash flow duration FVF @9% Terminal value 1 275000 3 1.26                             3,46,500 2 -175000 2 1.188                            -2,07,900 3 475000 1 1.09                             5,17,750 4 475000 0 1                             4,75,000

                          11,31,350

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