CF 0 CF 1 2 25000 CF 3 5 50000 I 12 and then solve for NPV 13798753 N 5 I 12 PV

Cf 0 cf 1 2 25000 cf 3 5 50000 i 12 and then solve

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CF 0 = 0; CF 1-2 = 25000; CF 3-5 = 50000; I = 12; and then solve for NPV = \$137,987.53. N = 5; I = 12; PV = -137987.53; PMT = 0; and then solve for FV = \$243,181.18. Step 2: Find the MIRR, which is the discount rate that equates the cash inflows and outflows: N = 5; PV = -100000; PMT = 0; FV = 243181.18; and then solve for I = MIRR = 19.45%. 83. MIRR and CAPM Answer: d Diff: M R Time line: 0 1 2 3 Years | | | | -2,028 1,000 1,000 1,000 1,160.00 1,345.60 3,505.60 -2,028 MIRR = 20% k = 16% 1.16 (1.16) 2 Step 1: Calculate the historical beta: Regression method: Financial calculator: Different calculators have different list entry procedures and key stroke sequences. Enter Y-list: Inputs: Item(1) = 9 INPUT; Item(2) = 15 INPUT; Item(3) = 36 INPUT. Enter X-list: Inputs: Item(1) = 6 INPUT; Item(2) = 10 INPUT;
Chapter 10 - Page 78 Item(3) = 24 INPUT; use linear model. Output: m or slope = 1.50. Graphical/numerical method: Slope = Rise/Run = (36% - 9%)/(24% - 6%) = 27%/18% = 1.5. Beta = 1.5. Step 2: Calculate cost of equity using CAPM and beta and given inputs: k e = k RF + (RP M )Beta = 7.0% + (6%)1.5 = 16.0%. Step 3: Calculate TV of inflows: Inputs: N = 3; I = 16; PV = 0; PMT = 1000. Output: FV = -\$3,505.60. Step 4: Calculate MIRR: Inputs: N = 3; PV = -2028; PMT = 0; FV = 3505.60. Output: I = 20.01 = MIRR 20%. 84. MIRR and missing cash flow Answer: d Diff: M The up-front cost can be calculated using the payback: \$400 + (\$500)(0.5) = \$650. The terminal value of the cash inflows are: (\$400)(1.1) 2 + (\$500)(1.1) + \$200 = \$1,234. Use your calculator to obtain the MIRR: Enter N = 3; PV = -650; PMT = 0; FV = 1234; and then solve for MIRR = I = 23.82%. 85. MIRR, payback, and missing cash flow Answer: d Diff: M Step 1: Solve for the CF 0 by knowing the payback is exactly 2.0: The CF 0 for the project is \$1 + \$1.5 = \$2.5 million. Step 2: Find the FV of the cash inflows: FV = \$2.50 + (\$2.00)(1.12) 1 + (\$1.50)(1.12) 2 + (\$1.00)(1.12) 3 = \$2.50 + \$2.24 + \$1.88160 + \$1.40493 = \$8.026530 million. Step 3: Solve for the MIRR: Enter the following input data in the calculator: N = 4; PV = -2.5; PMT = 0; FV = 8.026530; and then solve for I = MIRR = 33.85881% 33.86%. 86. MIRR and IRR Answer: e Diff: M Time line: 0 k = 8% 1 5 -20,000 7,000 7,000 IRR T = 22.11%. Calculate MIRR T : Find TV of cash inflows:
Chapter 10 - Page 79 N = 5; I = 8; PV = 0; PMT = 7000; and then solve for FV = TV = \$41,066.21. Find MIRR T = 15.48%: N = 5; PV = -20000; PMT = 0; FV = 41066.21; and then solve for I = MIRR = 15.48%. Sum = 22.11% + 15.48% = 37.59%. 87. Mutually exclusive projects Answer: b Diff: M Time line: IRR A = ? 0 IRR B = ? 1 2 3 Years CF A -100,000 39,500 39,500 39,500 CF B -100,000 0 0 133,000 Financial calculator solution: Project A: Inputs: CF 0 = -100000; CF 1 = 39500; N j = 3. Output: IRR A = 8.992% 9.0%. Project B: Inputs: CF 0 = -100000; CF 1 = 0; N j = 2; CF 2 = 133000. Output: IRR B = 9.972% 10.0%. The firm’s cost of capital is not given in the problem; so use the IRR decision rule. Since IRR B > IRR A ; Project B is preferred. 88. Before-tax cash flows Answer: b Diff: M Time line: 0 IRR = 15% 1 2 3 4 10 Years -10,000 PMT = ? PMT PMT PMT PMT Financial calculator solution: Inputs: N = 10; I = 15; PV = -10000; FV = 0. Output: PMT = \$1,992.52. Before-tax CF = \$1,992.52/0.6 = \$3,320.87 \$3,321. 89. Crossover rate Answer: b Diff: M Find the differences between the two projects’ re spective cash flows as follows: (CF A - CF B ). CF 0 = -5,000 - (-5,000) = 0; CF 1 = 200 - 3,000 = -2800; CF 2 = - 2200; CF 3 = 2200; CF 4 = 4800. Enter these CFs and find the IRR = 16.15%, which is the crossover rate.
Chapter 10 - Page 80 90. Crossover rate Answer: b Diff: M First, find the differential CFs by subtracting Team A CFs from Team B CFs as follows: CF 0 = -5.5; CF 1 = 0; CF 2 = 0; CF 3 = 4; CF 4 = 4; and then solve for IRR = 11.35%.

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