Please help Suppose your firm is considering investing in a project with the cas
ID: 2707204 • Letter: P
Question
Please help
Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 11 percent, and that the maximum allowable payback and discounted payback statistics for your company are 3 and 3.5 years, respectively.
Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 11 percent, and that the maximum allowable payback and discounted payback statistics for your company are 3 and 3.5 years, respectively.
Explanation / Answer
Because you are only offering 300 points, my explanation will be limited. The formula you need to use is:
The nth root of [FV(positive cash flows) / outlay] - 1. For the FVs, you use the required rate of return.
The MIRR should be 6.25478%, which rounds to 6.25%. If the required rate of return is 11%, then this project does not meet that requirement based on the MIRR.