A present value of future cash flows of $63.136 millionAnd, •An NPV of 13.136 millionSolution:PI= PV of future cash flows = 63.136 = 1.26Initial Investment 50
Or,PI= 1 + NPV = 1 + 13.136 = 1.26Initial Investment 50•If PI > 1, then it means the investment is profitable (accept).•If PI < 1, then it means the investment is not profitable (reject). •If PI = 1, then investment is breaking even, company can accept it depending on the objectives of the company and expectations of whether investment will give profitable returns after the projected period.
MODIFIED INTERNAL RATE OF RETURN (MIRR)•The modified internal rate of return(MIRR) is a financialmeasure of an investment's attractiveness.•It is used in capital budgetingto rank alternative investments of equal size. As the name implies, MIRR is a modification of the internal rate of return(IRR) and as such aims to resolve some problems with the IRR.•It can be used to compare different investments as well.
CALCULATION STEP 1 - The future value of positive cash flows discounted at the reinvestment rate, also known as “Terminal Value” STEP 2 - The present value of negative cash flows discounted at the financing rateSTEP 3 – The number of periods
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- Spring '20
- Net Present Value