To construct: A spreadsheet to compute the payback period, internal rate of return , modified internal rate of return and net present value of the proposed mine. Payback Period: It is ascertained when cost of project is divided by the annual cash flows of the respective project. The payback period is a method used in capital budgeting. It does not involve the time value of money factor. Internal Rate of Return (IRR): IRR is also a technique of capital budgeting that includes the time value of money concept. The IRR of a project is shows as the profitability arises from the project. The IRR of a project is calculated with the help of NPV calculations. Modified Internal Rate of Return(MIRR): It is also a kind of technique used in capital budgeting while selecting a project. It is modified version of the IRR and commonly used in large scale business to purchase heavy investment. Net Present Value (NPV): NPV is a technique used in capital budgeting to see the project is profitable for the company or not. The selection is based on the result of NPV as if it is positive then it should be selected and in the case of negative NPV it should be rejected.

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Chapter 5, Problem 1MC

Summary Introduction

To construct: A spreadsheet to compute the payback period, internal rate of return, modified internal rate of return and net present value of the proposed mine.

Payback Period:

It is ascertained when cost of project is divided by the annual cash flows of the respective project. The payback period is a method used in capital budgeting. It does not involve the time value of money factor.

Internal Rate of Return (IRR):

IRR is also a technique of capital budgeting that includes the time value of money concept. The IRR of a project is shows as the profitability arises from the project. The IRR of a project is calculated with the help of NPV calculations.

Modified Internal Rate of Return(MIRR):

It is also a kind of technique used in capital budgeting while selecting a project. It is modified version of the IRR and commonly used in large scale business to purchase heavy investment.

Net Present Value (NPV):

NPV is a technique used in capital budgeting to see the project is profitable for the company or not. The selection is based on the result of NPV as if it is positive then it should be selected and in the case of negative NPV it should be rejected.

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