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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
Q1 A project will cost $1 million. The company uses a 5% discount rate as a threshold for accepting capital projects. It is expected to have a 5 year life and returns (net of all costs and taxes) the following: t: 0 1 2 3 4 5 CF0 CF1 CF2 CF3 CF4 CF5 Year0 Year1 Year2 Year3 Year4 Year5 ($1,000,000) $500,000 $400,000 $300,000 $200,000 $100,000 k = 5.00% a) Calculate the Internal Rate of Return (IRR). IRR = 20.27% <== use="" "irr"="" excel="" formula="" b)="" assuming="" the="" funds="" can="" be="" invested="" at="" 3%="" [ri],="" calculate="" the="" mirr="" and="" the="" terminal="" value="" (tv).="" ri="3%" mirr="10.19%"></==><== use="" "mirr"="" excel="" formula=""></==> TV = <== tv="" is="" the="" net="" future="" value="" (nfv)="" of="" all="" [positive]="" cash="" inflows="" in="" the="" project.="" year="" nfv="" c)="" calculate="" the="" project’s="" net="" present="" value="" (npv).="" 0="" npv="$324,806.34"></==><== use="" "npv"="" excel="" formula="" 1="" 2="" 3="" d)="" calculate="" the="" profitability="" index="" (pi).="" 4="" pi=""></==><== no="" excel="" formula="" for="" this="" 5=""></==> NPV of all POSITIVE CFs: [1] Take [1] divided by [2] to get PI; monkey2 NPV of all NEGATIVE CFs: [2] ignore negative sign in [2]; PI is always positive. e) Calculate the Payback Period (PB). PB = <== no="" excel="" formula="" for="" this="" f)="" calculate="" the="" discounted="" payback="" period="" (dpb).=""></==> DPB = <== no excel formula for this no="" excel="" formula="" for="" this=""></== no excel formula for this >
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