Question

1. DUULIUL LUI . ILUOPUITUJOUL. 5. A project will cost $95,000 today and there will be an additional cost in year 3 of $15,000. The project will have the following projected cash flows: Cash Flow $30,000 $50,000 $0 $50,000 The discount rate is 14%. Calculate the modified internal rate of return. Do you accept or reject? (Must have correct set-up and your answer should be between two consecutive whole percentages.)

make sure you show all the steps

Answer 1

Modified IRR is similar to IRR. In this Intermediary Cfs are assumed as reinvested at discount Rat=e.

Modified IRR:

Year	Bal Years to Maturity	CF	FVF @14%	FV of CF
1	3	30000	1.4815	$    44,446.32
2	2	50000	1.2996	$    64,980.00
3	1	-15000	1.1400	$ -17,100.00
4	0	50000	1.0000	$    50,000.00
FV of cF				$1,42,326.32

$ 95,000 has become $ 142,326.32 over a period of 4 years

142,326.32 = $ 95,000(1+r)^4

(1+r)^4 = 142326.32 / 95000

= 1.4982

1+r = 1.4982^(1/4)

= 1.1063

r = 1.1063 - 1

= 0.1063 i.e 10.63%

pls Comment, if any further assistance is required.