Ask Question
3 June, 01:46

Winston Clinic is evaluating a project that costs $61,500 and has expected net cash inflows of $15,000 per year for eight years. The first inflow occurs one year after the cost outflow, and the project has a cost of capital of 11 percent. a. What is the project's payback? b. What is the project's NPV? It's IRR? It's MIRR?

+5
Answers (1)
  1. 3 June, 03:56
    0
    Payback Period = 4 Years

    Net Present value = $15692

    Internal Rate of Return = 17.82%

    Modified Internal Rate of Return = 14.20%

    Explanation:

    Payback Period = (Initial Investment / Net Cash inflows)

    Payback Period = $61500/15000 = 4 Years

    Net Present value using PVIF table value at 11% over the period and discount them given cash flows gives us discounted cash flows.

    Year CF PVIF 11%, n Discounted CF

    0 - 61500 1.000 (61,500)

    1 15000 0.901 13,514

    2 15000 0.812 12,174

    3 15000 0.731 10,968

    4 15000 0.659 9,881

    5 15000 0.593 8,902

    6 15000 0.535 8,020

    7 15000 0.482 7,225

    8 15000 0.434 6,509

    Summing up the discounted Cash flows gives us the Net Present value of $15692

    Internal Rate of Return:

    Using Excel Function IRR @ 17.82% applying it on cash flows gives the rate where Present value of Cash flows is Zero.

    Modified Internal Rate of Return:

    Modified internal rate of return is at the level of 14.20% as it lower than IRR because it assume positive cash flows invested at cost of capital.
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “Winston Clinic is evaluating a project that costs $61,500 and has expected net cash inflows of $15,000 per year for eight years. The first ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers