Question

1. WACC5% YearC0 Cash $1000 $250 $200 $200 $500 $250 $200 $250 $200 Flows 4 5 5 3 3 5 Find A. PV B. FV C. MIRR D. IRR

Please show your work

Answer 1

Please refer to the table below. In the second column I have shown how each row has been calculated:

Part (A) PV and part (B) FV have been calculated in the workings below:

WACC	R	5%
Year, N		0	1	2	3	4	5	6	7	8
Cash flows	C	(1,000.00)	250.00	200.00	200.00	500.00	250.00	200.00	250.00	200.00
PV Factor	(1+R)-N	1.0000	0.9524	0.9070	0.8638	0.8227	0.7835	0.7462	0.7107	0.6768
PV of Cash flows	C x PV Factor	(1,000.00)	238.10	181.41	172.77	411.35	195.88	149.24	177.67	135.37
PV	Sum of all PV of cash flows	661.78
FV Factor	(1+R)N	1.4775	1.4071	1.3401	1.2763	1.2155	1.1576	1.1025	1.0500	1.0000
FV of Cash flows	C x FV factor	(1,477.46)	351.78	268.02	255.26	607.75	289.41	220.50	262.50	200.00
FV	Sum of all FV of cash flows	977.75

Part (C) MIRR

FV of all future positive cash flows = FV of all cash flows - FV of initial investment = 977.75 (as calculated in Part (B)) - Initial investment x FV factor = 977.75 - [-1,000 x FV factor at year 0] = 977.75 - (-1,000) x 1.4775 = 2,455.21

MIRR

N = period = 8 years

$= (\frac{FV of all future positive cash flows}{Initial investment})^{1/N} - 1$

= $= (\frac{2,455.21}{1,000})^{1/8} - 1$ = 11.88%

Part (D)

IRR

We will have no other option but to use the excel function called IRR to calculate the IRR

IRR = IRR(Cash flow 0, Cash flow 1,....Cash flow 8) = IRR(-1000, 250,200,....,200) = 19.59%