FM11 39 - h. 2. What is project Ps NPV? What is its IRR?...

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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 hp-10b financial calculator will give the message "error-soln." This means that project P has multiple IRRs . An HP-17B 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 non-normal 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.

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