Question

and satellite technologies resulted in the cash flows shown. Calculate unique external rate of return val- ues using (a) the ROIC method with an investment rate of 30% per year, and (b) the MIRR approach with an investment rate of 30% and a borrowing rate of 10% per year. Year Cash Flow, $1000 2000 1200 -4000 -3000 2000

Please do not use Excel to show the answer, thanks

Answer 1

a. Future worth at EOY 1 = 2000 * (1+0.3) + 1200 = 2000 * 1.3+ 1200 = 3800

Future worth at EOY 2 = 3800 * 1.3 - 4000 = 940

Future worth at EOY 3 = 940 * 1.3 - 3000 = -1778

Let i% be ERR, then

-1778 * (1+i) + 2000 = 0

1+i = 2000 / 1778 = 1.124859

i = 0.124859 ~ 12.49%

b.

PW of outflows at borrowing rate = 4000 / (1+0.1)^2 + 3000 / (1+0.1)^3

= 4000 / (1.1)^2 + 3000 / (1.1)^3

= 5559.729

FW of inflows at investment rate = 2000 * (1+0.3)^4 + 1200 * (1+0.3)^3 + 2000

= 2000 * (1.3)^4 + 1200 * (1.3)^3 + 2000

= 10348.60

let i% be ERR, then

5559.73 * (1+i)^4 = 10348.60

(1+i)^4 = 10348.60 / 5559.73 = 1.861349

1+i = 1.861349 ^ (1/4) = 1.168038

i = 1.168038 - 1

i = 0.168038 = 16.80%