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# Financial payback, NPV, IRR, MIRR

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Info. given on a 5 year project:

Total equipment \$1,500,000
Shipping \$ 35,000
Installation \$ 75,000
Rise in inventory \$ 150,000
Rise in A/P from Inv. \$ 30,000
Produced per year 500,000 units @\$2.00 per unit 1st two yrs/\$2.50 last 3 yrs.
Variable Costs 70% of Sales
Improvment Investment \$450,000 BEFORE project began
Straight line depreciation
Tax rate 40%
WACC 10%
Will pay project dividends 5%
Int. expense on debt 7%
Equip. salvage end of 5 yrs \$100,000
Process methodology \$ 75,000 (sold at end of project).

If you do not go thru with project, land could have been leased for \$80,000 per yr.
If you go thru with project, you will have a decrease of \$45,000 per yr. in revenues from another product line.

Calculate Financial payback, NPV, IRR, MIRR

If annual inflation is 3%, calculate project's inflation adjusted Fin. payback, NPV, IRR and MIRR

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#### Solution Preview

Info. given on a 5 year project:

Total equipment \$1,500,000
Shipping \$ 35,000
Installation \$ 75,000
Rise in inventory \$ 150,000
Rise in A/P from Inv. \$ 30,000
Produced per year ...

#### Solution Summary

This explains the steps to compute the Financial payback, NPV, IRR, MIRR

\$2.19

## Key Financial Metrics (payback period, net present value, internal rate of return and modified rate of return)

Calculate for a company's CFO, key financial metrics for this capital budgeting project. These key metrics must include payback period, net present value, internal rate of return and modified rate of return for a proposed capital budgeting project. Describe what each of these metrics tells us.

Key Financial Data for BCD Company Project

Project's discount rate 10%

Time Period (in years)
______________0____________1______________2____________3____
Cash out (\$10,000)
Cash in \$7,500 \$7,500 \$7,500

- assume cash flows occur at the beginning of the period
(year 1 cash flow occurs 12 months after the initial investment)

Can you explain this to me in layman's terms so that I may understand the concept.

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