NPV PI IRR Decision

Project M 53,102.02 1.11 17.58%

Project N 107,414.85 1.28 22.77% Accept

IRR = 17% + (5,053.24/8,700.59 X 1%) 17.58% 22% + (6,368.23/8,323 X 1%)

Method I -Discounting
M N
(470,000.00) (511,908.53) (380,000.00) (430,663.11)
180,000.00 180,000.00 90,000.00 90,000.00
220,000.00 220,000.00 160,000.00 160,000.00
210,000.00 210,000.00 130,000.00 130,000.00
(50,000.00) - 240,000.00 240,000.00
140,000.00 140,000.00 150,000.00 150,000.00
(20,000.00) - (100,000.00)
MIRR 16.77% 20.63%
2 2.00
Method II - Reinvestment
M N
(470,000.00) (470,000.00) (380,000.00) (380,000.00)
180,000.00 317,221.50 - 90,000.00 158,610.75 -
220,000.00 346,174.26 - 160,000.00 251,763.10 -
210,000.00 295,034.88 - 130,000.00 182,640.64 -
(50,000.00) (62,720.00) - 240,000.00 301,056.00 -
140,000.00 156,800.00 - 150,000.00 168,000.00 -
(20,000.00) (20,000.00) 1,032,510.64 (100,000.00) (100,000.00) 962,070.49
MIRR 14.02% 16.74%
2.00 2.00
Method III - Combination
M N
(470,000.00) (511,908.53) (511,908.53) (380,000.00) (430,663.11) (430,663.11)
180,000.00 317,221.50 - 90,000.00 158,610.75 -
220,000.00 346,174.26 - 160,000.00 251,763.10 -
210,000.00 295,034.88 - 130,000.00 182,640.64 -
(50,000.00) - - 240,000.00 301,056.00 -
140,000.00 156,800.00 - 150,000.00 168,000.00 -
(20,000.00) - 1,115,230.64 (100,000.00) - 1,062,070.49
MIRR 13.86% 16.23%
2.00 2.00
1 pt each 3
1 pt each for c 3
2 pts for the de 2

22.77%
 65 45 25 X 2 30 10 X 2
52.5 32.50 X 2
P=? 20 1 20 20 2 20 20 3 20 P = 0
 PI NPV IRR Decision
Project M 1.25 37,760.92 27.82% Accept 1 pt each for the computation
Project N 1.21 77,513.77 25.57% 2 pts for the decision

Year Project M Project N

0 (150,000.00) (372,000.00)
1 68,600.00 159,300.00
2 76,800.00 193,200.00
3 71,300.00 154,800.00
4 40,500.00 110,400.00
27.82% 25.57%

Pts
Problem 1 8
Problem 2 12
Total 20

Problem 10 Cash Flow A Cash Flow B Cash Flows Dif.

(78,500.00) (78,500.00) -
43,000.00 21,000.00 22,000.00
29,000.00 28,000.00 1,000.00
23,000.00 34,000.00 (11,000.00)
21,000.00 41,000.00 (20,000.00)
12.21%
(78,500.00) (78,500.00) -
38,320.37 18,714.60 0.891171 19,605.77
23,031.40 22,237.22 0.794186 794.19
16,278.39 24,063.71 0.707756 (7,785.32)
13,245.37 25,860.01 0.630732 (12,614.64)
NPV 12,375.53 12,375.53 (0.00)
ARR = Average Net Income / Average Investment
Average Net Income = Sum of all net income in a given years or period / Number of years or period
Average Investment = (Cost + Salvage Value) / 2

Year 1 1,368,000.00
Year 2 1,935,000.00
Year 3 1,738,000.00
Year 4 1,310,000.00
Average Net Income 1,587,750.00
Average Investment 6,250,000.00
ARR = 25.40%

MIRR
Method I - Discounting, negative cash flows are discounted as if they were incurred at year 0.

Cash Flows Mod. Cash Flows 19% MIRR

Year 0 (27,500.00) (2,514.73) (30,014.73) 30,134.80 30,014.73
Year 1 10,430.00 10,430.00
Year 2 13,850.00 13,850.00 120.07
Year 3 11,270.00 11,270.00 562.54
Year 4 9,830.00 9,830.00
Year 5 (4,050.00) -
MIRR 19.21% MIRR = 19.21%

Method II - Reinvestment, we compute for the future value of all cash flows except the initial and the last year cash flows.
FV = CF X 1+i^n PV = CF X 1+i^-n
Cash Flows Mod. Cash Flows 14% MIRR
Year 0 (27,500.00) (27,500.00) 28,100.24 27,500.00
Year 1 10,430.00 15270.563 -
Year 2 13,850.00 18434.35 - 600.24
Year 3 11,270.00 13636.7 - 1,200.69
Year 4 9,830.00 10813 -
Year 5 (4,050.00) (4,050.00) 54,104.61
MIRR 14.49% MIRR = 14.50%

Year 0 Year 1 Year 2 Year 3 Year 4

Year 0 (27,500.00) (27,500.00)
Year 1 10,430.00
Year 2 13,850.00
Year 3 11,270.00
Year 4 9,830.00
Year 5

Method III - Combination, negative cash flows are discounted as if they were incurred at year 0 and positive cash are express
at their future values.
Method III - Combination, negative cash flows are discounted as if they were incurred at year 0 and positive cash are express
at their future values.
Cash Flows Mod. Cash Flows 14% MIRR
Year 0 (27,500.00) (2,514.73) (30,014.73) 30,203.68 30,014.73
Year 1 10,430.00 15,270.56 -
Year 2 13,850.00 18,434.35 - 188.95
Year 3 11,270.00 13,636.70 - 1,290.56
Year 4 9,830.00 10,813.00 -
Year 5 (4,050.00) - 58,154.61
MIRR 14.14% MIRR = 14.15%

Prob 23.
Method I - Discounting, negative cash flows are discounted as if they were incurred at year 0.

Cash Flows Mod. Cash Flows 19% MIRR

Year 0 (27,500.00) (2,403.48) (29,903.48) 30,134.80 29,903.48
Year 1 10,430.00 10,430.00
Year 2 13,850.00 13,850.00 231.32
Year 3 11,270.00 11,270.00 562.54
Year 4 9,830.00 9,830.00
Year 5 (4,050.00) -
MIRR 19.41% MIRR = 19.41%

Method II - Reinvestment, we compute for the future value of all cash flows except the initial and the last year cash flows.
FV = CF X 1+i^n PV = CF X 1+i^-n
Cash Flows Mod. Cash Flows 13% MIRR
Year 0 (27,500.00) (27,500.00) 27,869.98 27,500.00
Year 1 10,430.00 14,189.90 -
Year 2 13,850.00 17,447.01 - 369.98
Year 3 11,270.00 13,145.33 - 1,201.11
Year 4 9,830.00 10,616.40 -
Year 5 (4,050.00) (4,050.00) 51,348.64
MIRR 13.30% MIRR = 13.31%

Year 0 Year 1 Year 2 Year 3 Year 4

Year 0 (27,500.00) (27,500.00)
Year 1 10,430.00
Year 2 13,850.00
Year 3 11,270.00
Year 4 9,830.00
Year 5

Method III - Combination, negative cash flows are discounted as if they were incurred at year 0 and positive cash are express
at their future values.
Cash Flows Mod. Cash Flows 13% MIRR
Year 0 (27,500.00) (2,403.48) (29,903.48) 30,068.16 29,903.48
Year 1 10,430.00 14,189.90 -
Year 2 13,850.00 17,447.01 - 164.68
Year 3 11,270.00 13,145.33 - 1,295.84
Year 4 9,830.00 10,616.40 -
Year 5 (4,050.00) - 55,398.64
MIRR 13.12% MIRR = 13.13%
 20%
29,572.26

the last year cash flows.

15%
26,899.55

Year 5

15,270.56
18,434.35
13,636.70
10,813.00
(4,050.00)

nd positive cash are express

 15%
28,913.12

20%
29,572.26

the last year cash flows.

14%
26,668.87

Year 5

14,189.90
17,447.01
13,145.33
10,616.40
(4,050.00)

nd positive cash are express

14%
28,772.32