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h.
2. What is project P’s NPV?
What is its IRR?
Its MIRR?
Answer:
Here is the time line for the cash flows, and the NPV:
0
1
2



10%
800,000
5,000,000
5,000,000
NPV
P
= $386,776.86.
We can find the NPV by entering the cash flows into the cash flow register, entering i
= 10, and then pressing the NPV button.
However, calculating the IRR presents a
problem.
With the cash flows in the register, press the IRR button.
An hp10b
financial calculator will give the message "errorsoln."
This means that project P has
multiple IRRs
.
An HP17B will ask for a guess.
If you guess 10%, the calculator
will produce IRR = 25%.
If you guess a high number, such as 200%, it will produce
the second IRR, 400%
1
.
The MIRR of project P = 5.6%, and is found by computing
the discount rate that equates the terminal value ($5.5 million) to the present value of
cost ($4.93 million).
h.
3. Draw project P's NPV profile.
Does project P have normal or nonnormal cash
flows?
Should this project be accepted?
Answer:
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This note was uploaded on 07/13/2011 for the course FIN 4414 taught by Professor Staff during the Spring '08 term at University of Florida.
 Spring '08
 Staff

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