The NPV ( Net present value ) and IRR ( Internal rate of return ) for the reinvestment project and identify whether the computed IRR is the MIRR (Modified internal rate of return) of the project with a reason. Introduction: The internal rate of return is a rate of discount, which makes the predictable investment’s NPV equal to zero. The net present value is one of the capital budgeting techniques, which is used to identify the profitability in the proposed investment. Answer: The NPV for the reinvested project is -$95,069.01 and IRR is 8.73%. As the IRR calculation might look like MIRR computation, but they are different. It is a calculation of the standard IRR.

Question

Want to see the full answer?

Answer 1

Question

Chapter 9, Problem 28QP

Summary Introduction

To calculate: The NPV (Net present value) and IRR (Internal rate of return) for the reinvestment project and identify whether the computed IRR is the MIRR (Modified internal rate of return) of the project with a reason.

Introduction:

The internal rate of return is a rate of discount, which makes the predictable investment’s NPV equal to zero. The net present value is one of the capital budgeting techniques, which is used to identify the profitability in the proposed investment.

Answer:

The NPV for the reinvested project is -$95,069.01 and IRR is 8.73%. As the IRR calculation might look like MIRR computation, but they are different. It is a calculation of the standard IRR.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Students have asked these similar questions

Anderson International Limited is evaluating a project in Erewhon. The project will create the following cash flows: Year O 1 2 3 4 Cash Flow -$ NPV IRR 1,320,000 495,000 560,000 455,000 410,000 All cash flows will occur in Erewhon and are expressed dollars. In an attempt to improve its economy, the Erewhonian government has declared that all cash flows created by a foreign company are “blocked” and must be reinvested with the government for one year. The reinvestment rate for these funds is 3 percent. If Anderson uses a required return of 14 percent on this project, what are the NPV and IRR of the project? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. Enter your IRR as a percent.) %

Mansukhbhai

Anderson International Limited is evaluating a project in Erewhon. The project will create the following cash flows: Year Cash Flow -$590,000 O 1 2 34 220,000 163,000 228,000 207,000 All cash flows will occur in Erewhon and are expressed in dollars. In an attempt to improve its economy, the Erewhonian government has declared that all cash flows created by a foreign company are "blocked" and must be reinvested with the government for one year. The reinvestment rate for these funds is 7 percent. Assume Anderson uses a required return of 13 percent on this project. a. What is the NPV of the project? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the IRR of the project? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. NPV b. IRR %