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Unformatted text preview: Click to edit Master subtitle style M G M T 5 M G M T 5 Chapters 57 Problems M G M T 5 M G M T 5 Modified 6.13 • Suppose the following two mutually independent investment opportunities are available to Greenplain Inc. Appropriate Discount Rate is 10%. • Compute the NPV, IRR, Modified IRR, and the Profitability Index of these projects. • Which project should Greenplain choose? Year Alpha Beta5002000 1 300 300 2 700 1800 3 600 1700 M G M T 5 M G M T 5 • CF0=500, CF01=300, CF02=700, CF03=600 • I=10%, NPV=?(802.03), IRR=77.21 • PV of future CF (CF0=0, CF01=300, CF02=700, CF03=600, I=10%, NPV=? (1302.03). PI=1302.03/500. Computing MIRR • Reinvest all interim cashflows till project end. • PV=300, N=2, I=10%, PMT=0, FV=? (363) • PV=700, N=1, I=10%, PMT=0, FV=? (770). • Total Value at Year 3=363+770+600=1733 • Invest 500 today, get 1733 in 3 years. What is our return? • PV=500, N=3, PMT=0, FV=1733, I=? (51.34) • CF0=500, CF01=0, F01=2, CF02=1733, IRR=? (51.34) In a similar way, for project 2 NPV=1037.57, IRR=31.98, PI=1.5, MIRR=26.44 (since CF are reinvested at a lower rate than IRR, MIRR is < IRR) M G M T 5 M G M T 5 Problem 6.18 • Consider the following aftertax cashflows of two mutually exclusive projects for the China Daily News a. Based on payback period rule, which project should be chosen? Which project has the greater IRR?...
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This note was uploaded on 09/30/2011 for the course SCHOOL OF 101 taught by Professor Abc during the Fall '11 term at Binghamton.
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