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    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 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 ...

    Solution Summary

    Solution describes the steps to calculate NPV, IRR, MIRR and PI of given projects. It also determines the better project.

    $2.19

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