Calculating NPV, IRR and MIRR,PI of given projects
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Project S has a cost of $10,000 and is expected to produce benefits (cash flows) of $3000 per year for 5 years. Project L costs $25,000 and is expected to produce cash flows of $7400 per year for 5 years. Calculate the two projects, NPV, IRRs, MIRR and PI, assuming a cost of capital of 12%.
Which project would be selected, assuming they are mutually exclusive, using each ranking method?
Which should actually be selected?
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Solution Summary
Solution describes the steps to calculate NPV, IRR, MIRR and PI of given projects. It also determines the better project.
Solution Preview
Please refer attached file for better clarity of formulas in MS Excel.
Solution:
1. Project's NPV?
Project S Project L
Year End(n) Cash flow (C) PV=C/(1+12%)^n Year End(n) Cash flow (C) PV=C/(1+12%)^n
0 -10000 -10000.00 0 -25000 -25000.00
1 3000 2678.57 1 7400 6607.14
2 3000 2391.58 2 7400 5899.23
3 3000 2135.34 3 7400 5267.17
4 3000 1906.55 4 7400 4702.83
5 ...
Education
- BEng (Hons) , Birla Institute of Technology and Science, India
- MSc (Hons) , Birla Institute of Technology and Science, India
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