finance data bank
121 Finding the NPV
A project has an initial cost of $40,000, expected net cash inflows of $9,000 per year for 7 years, and a cost of capital of 11 %. What is the project’s NPV? (Hint: Begin by constructing a time line.)
122 IRR
123 MIRR
Step 1: FV=?= 88049.47; PMT=9000;N=7;I/Y= 11; PV=0 Step 2: FV=88049.47; PMT=;N=7;I/Y=
125 Projected Payback Period
126 Discounted Payback
year 
project a 
project B 
1 
$ 5,000,000 
$20,000,000 
2 
$10,000,000 
$10,000,000 
3 
$20,000,000 
$6,000,000 
127 NPV
Your division is considering two investment projects, each of which requires an upfront expenditure of $15 million. You estimate that the investments will produce the following net cash flows: a. What are the two projects’ net present values, assuming the cost of capital
is 5%? 10%? 15%?
b. What are the two projects’ IRRs at these same costs of capital
128 NPV, IRRS, and MIRR for Independent Projects
year 
truck 
pulley 
1 
$5,100 
$7,500 
2 
5,100 
7,500 
3 
5,100 
7,500 
4 
5,100 
7,500 
5 
5,100 
7,500 
Edelman Engineering is considering including two pieces of equipment, a truck and an overhead pulley system, in this year’s capital budget. The projects are independent. The cash outlay for the truck is $17,100 and that for the pulley system is $22,430. The firm’s cost of capital is 14%. Aftertax cash flows, including depreciation, are as follows:
0 15 IRR= MIRR= NPV=
Truck: 17,100 5,100
Pulley: 22,430 7,500
R=14%
1211 MIRR & NPV
year 
X 
y 
0 
$5,000 
$5,000 
1 
1 ,000 
4,500 
2 
1 ,500 
1 ,500 
3 
2,000 
1 ,000 
4 
4,000 
500 
Your company is considering two mutually exclusive projects, X and Y, whose costs and cash flows are shown below:
The projects are equally risky, and their cost of capital is 12%. You must make a recommendation, and you must base it on the modified IRR (MIRR). Which project has the higher MIRR?

Rating:
5/
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