Question

Jackson Company is considering a project that has the following cash flows. What are the project's payback, discounted payback, NPV, IRR, and MIRR? The weighted Average Cost of capital of Jackson Company is 10 percent. Explain, in writing, if the project is accepted and why?

Year	Cash Flows ($)
0	-950
1	525
2	485
3	445
4	405

Answer 1

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

A В C Е F G Н 10% Cost of capital 2. 3 PVF(10%) 4 Cash Flow Cumulative CF PV CF Cumulative PV CF Year (950.00) 5 (950.00) (950.00) (950.00) 0 1.0000 6 (425.00) 0.9091 477.27 (472.73) 1 525.00 (71.90) 7 60.00 2 485.00 0.8264 400.83 8 445.00 505.00 0.7513 262.43 334.34 9 910.00 4 405.00 0.6830 276.62 539.05 10 Payback Period 1.876 years 11 2.215 years 12 Discounted Payback Period NPV IRR 13 539.05 14 35.54% 23.08% 15 MIRR 16 Project should be Accepted. Because It has Positive net present value, IRR and MIRR is greater than its cost of capital 17 and it recover its intial cost in approx 2 years. 18 19 20 21 22

Cell reference -

А В C E F Cost of capital 0.1 2 PVF(10% =1/(1+$C$2)^B5C5*E5F5 = 1/(1+$C$2)^B6C6*E6G5+F6 = 1/(1+$C$2)^B7C7*E7G6+F7 = 1/(1+$C$2)^B8 C8*E8G7+F8 -1/(1+$C$2)AB9C9*E9G8+F9 PV CF 4 Cash Flow Cumulative CF Cumulative PV CF Year -950 5 C5 525 6 1 -D5+C6 485 7 =D6+C7 445 8 -D7+C8 4. 9 405 =D8+C9 10 =B6+(-D6/(D7-D6)) =B7+(-G7/(G8-G7)) ЕC5+NPV(C2,С6:C9) =IRR (C5:C9) =MIRR(C5:C9,C2,C2) Payback Period Discounted Payback Period 11 years 12 years NPV 13 IRR 14 15 MIRR 16 17 Project should be Accepted. Because It has Positive net present value, IRR and MIRR is greater than its cost of capital and it recover its intial cost in approx 2 years. 18 19 20 21 22

Hope this will help, please do comment if you need any further explanation. Your feedback would be highly appreciated.