FIN3331 Homework Six.docx - Tri Bui ID 1516209 FIN 3331...

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Tri BuiID: 1516209FIN 3331 – HOMEWORK SIX11-1 NPV Project L costs $65,000, its expected cash inflows are $12,000 per year for 9 years, and its WACC is 9%. What is the project’s NPV?
Tri BuiID: 1516209FIN 3331 – HOMEWORK SIXTotal71942.96273Initial cost65000NPV6942.9611-2 IRR Refer to problem 11-1. What is the project’s IRR?IRRInternal rate of return is the rate at which if we discount all the future cash flows, theresulting NPV will be zero, it is minimum rate of return that management seeks from theproject, IRR of the asset/project must be greater than the required rate of return,otherwise it will not be feasible for the management to accept the project. Best way tocalculate IRR is using Excel. YearCash flow0-65000112000212000312000412000512000612000712000
Tri BuiID: 1516209FIN 3331 – HOMEWORK SIX812000912000100IRR11.57%Formula=IRR(J21:J31)11-3 MIRR Refer to problem 11-1. What is the project’s MIRR?MIRRMIRR is improved version of IRR, While calculating MIRR it is assumed that cash inflow resulting from the asset or project will not be kept idle however it will be invested further to generate more returnMIRR could be calculated using formula, however it is much easier to use excel.YearCash Inflow0-65000112000212000312000412000
Tri BuiID: 1516209FIN 3331 – HOMEWORK SIX512000612000712000812000912000MIRR10.24%Formula=MIRR(AL16:AL26,H2,H2)11-4 PAYBACK PERIOD Refer to problem 11-1. What is the project’s payback?Payback PeriodPayback period is the time it takes for a project to return the initial capital, Payback period is different than discounted payback in which cash flows are discounted first with required rate of return/discount rate, in payback period method cash flows are not discounted.

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