Suppose a company is considering two independent projects, Project A and Project B. The cash outlay for Project A is $14,000. The cash outlay for Project B is $20,000. The company’s cost of capital is 12%. The following table shows the after-tax cash flows. For each project, compute the NPV, the IRR, the MIRR, and indicate the accept/reject decision.
Year Project A Project B
1 $4800 $6700
2 $4800 $6700
3 $4800 $6700
4 $4800 $6700
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SOLUTION:
Year
0
1
2
3
4
Net Present Value
Internal Rate of Return
Modified Internal Rate of Return
Project A
Project B
$(14,000.00)
$4,800.00
$4,800.00
$4,800.00
$4,800.00
$(20,000.00)...