36 points. A project will have an initial after-tax cash outflow, lo, of $14.720. The hurdle...

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Answer 1

Answer #1

rate positively ..

ans a)
	Computation of IRR

	Year	Cash flow
	0	-14720
	1	0
	2	0
	3	4000
	4	4000
	5	4000
	6	4000
	7	4000
	8	4000


we have to first compute the future value of the cash flow from year 1 to 4


	Year	Cash flow	Future value
	1	0	0
	2	0	0
	3	4000	9953.28	=4000*(1+20%)^5
	4	4000	8294.4	=4000*(1+20%)^4
	5	4000	6912	=4000*(1+20%)^3
	6	4000	5760	=4000*(1+20%)^2
	7	4000	4800	=4000*(1+20%)^1
	8	4000	4000	=4000




	future value		39719.68

	now we have to use financial calculator to compute the MIRR
	Put in calcluator

	PV		-14720
	PMT		0
	FV		39719.68
	N		8

	Compute I		13.21%

	therefore MIRR =			13.21%


ans b)	Project should not be accepted as MIRR is lower than hurdle rate.

Answer 2

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