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Project A, which costs of $1,000 to purchase, will generate net cash inflows equal to $500 at the end of each of the next three years. The project's required rate of return is 10 percent. What are the project's internal rate of return (IRR) and modified internal rate of return (MIRR)?

a. 23.4%; 38.2%
b. 14.5%; 12.6%
c. 16.7%; 18.3%
d. 23.4%; 16.7%
e. 23.4%; 18.3%

Respuesta :

TomShelby

Answer:

e. 23.4%; 18.3%

Explanation:

The IRR will be calculate using Excel IRR formula =(-1000,500,500,500)

IRR = 23.4

he MIRR will be the future value of the postive cash flow divided agaisnt the presetn value fo the negative cash flow:

[tex]\sqrt[n]{\frac{FV cash-inflow \: at \: cost \: of \: capital }{PV cash-outflow \: at \: financial} } -1[/tex]

[tex]\sqrt[3]{\frac{500+500(1.1)+500(1.1)^2}{1000} } -1 = MIRR[/tex]

MIRR 18.3

Answer:

d. 23.4% ; 16.7

Explanation:

to calculate IRR using financial calculator we take the cash flows enter pressing the CFj button, enter rate on I/YR button, enter 3 years on N button shift and IRR/YR.

To get the MIRR we use the fomula [tex]\sqrt[N]{\frac{FVCF}{PVCF} }[/tex]

FVCF being the future cash flows of the 500s

PVCF = 1000 the only negative cash flow

this gives 16.7%

N in the fomula = 3 years

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