A B C D E F G H

1
2
3 Chapter 7. Mini Case
4
5 Situation
6
7 Assume that you recently went to work for Axis Components Company, a supplier of auto repair parts used in the after-
8 market with products from Chrysler, Ford, and other auto makers. Your boss, the chief financial officer, has just handed
9 you the estimated cash flows for two proposed projects. Project L involves adding a new item to the firm's ignition line; it
would take some time to build up the market for this product, so the cash inflows would increase over time. Project S
10 involves an add-on to an existing line, and its cash flows would decrease over time. Both projects have 3-year lives, because
11 Axis is planning to introduce entirely new models after 3 years. Here are the projects net cash flows (in thousands of
12 dollars):
13
14 Expected after-tax Project S
15 net cash flows (CFt)
16 Year (t) Project S Project L 0 1 2
17 0 ($100) ($100) (100) 70 50
18 1 70 10
19 2 50 60 Project L
20 3 20 80
21 0 1 2
22 (100) 10 60
23
24 Depreciation, salvage values, net working capital requirements, and tax effects are all included in these cash flows.
25
26 The CFO also made subjective risk assessments of each project, and he concluded that both projects have risk
27 characteristics which are similar to the firm's average project. Axis's weighted average cost of capital is 10%. You must no
28 determine whether one or both of the projects should be accepted.
29
30 a. What is capital budgeting? Answer: See Chapter 7 Mini Case Show
31
32 b. What is the difference between independent and mutually exclusive projects? Answer: See Chapter 7 Mini Case Show
33
34 c. (1.) What is the payback period? Find the paybacks for Projects L and S.
35
36 Payback Period
37
38 The payback period is defined as the expected number of years required to recover the investment, and it was the first
formal method used to evaluate capital budgeting projects. First, we identify the year in which the cumulative cash inflows
39 exceed the initial cash outflows. That is the payback year. Then we take the previous year and add to it unrecovered
40 balance at the end of that year divided by the following year's cash flow. Generally speaking, the shorter the payback
41 period, the better the investment.
42
43 Project S
44 Time period: 0 1 2 3
45 Cash flow: (100) 70 50 20
46 Cumulative cash flow: (100) (30) 20 40
 A B C D E F G H
47 0.00 0.00 1.00 0.00 Use Logical "AND" to deter
48 0.00 0.00 1.60 0.00 the first positive cumulative
49 Payback: 1.60 Use Logical IF to find the Pa
50 Use Statistical Max function
51 Alternative calculation: 1.60 display payback.
52
53 Project L
54 Time period: 0 1 2 3
55 Cash flow: (100) 10 60 80
56 Cumulative cash flow: (100) (90) (30) 50
57
58 Payback: 2.375 Uses IF statement.
59
60 (2.) What is the rationale for the payback method? According to the payback criterion, which project or projects should
61 be accepted if the firm's maximum acceptable payback is 2 years, and if Projects L and S are independent? If they are
62 mutually exclusive? Answer: See Chapter 7 Mini Case Show
63
64 (3.) What is the difference between the regular and discounted payback periods?
65
 A B C D E F G H
66 Discounted Payback Period
67 Discounted payback period uses the project's cost of capital to discount the expected cash flows. The calculation of
68 discounted payback period is identical to the calculation of regular payback period, except you must base the calculation
69 on a new row of discounted cash flows. Note that both projects have a cost of capital of 10%.
70
71 WACC = 10%
72
73 Project S
74 Time period: 0 1 2 3
75 Cash flow: (100) 70 50 20
76 Disc. cash flow: (100) 64 41 15
77 Disc. cum. cash flow: (100) (36) 5 20
78
79 Discounted Payback: 1.9 Uses IF statement.
80
81 Project L
82 Time period: 0 1 2 3 4
83 Cash flow: (100) 10 60 80 0
84 Disc. cash flow: (100) 9 50 60 0
85 Disc. cum. cash flow: (100) (91) (41) 19 19
86
87 Discounted Payback: 2.7 Uses IF statement.
88
89 (4.) What is the main disadvantage of discounted payback? Is the payback method of any real usefulness in capital
90 budgeting decisions?
91
92 The inherent problem with both paybacks is that they ignore cash flows that occur after the payback period mark. While
93 the discounted method accounts for timing issues (to some extent), it still falls short of fully analyzing projects. However,
94 all else equal, these two methods do provide some information about projects' liquidity and risk.
95
96 d. (1.) Define the term net present value (NPV). What is each project's NPV?
97
98 Net Present Value (NPV)
99 To calculate the NPV, we find the present value of the individual cash flows and find the sum of those discounted cash
100 flows. This value represents the value the project add to shareholder wealth.
101
102 WACC = 10%
103
104 Project S
105 Time period: 0 1 2 3
106 Cash flow: (100) 70 50 20
107 Disc. cash flow: (100) 64 41 15
108
109 NPV(S) = $19.98 = Sum disc. CF's. or $19.98 = Uses NPV function.
110
111 Project L
 A B C D E F G H
112 Time period: 0 1 2 3
113 Cash flow: (100) 10 60 80
114 Disc. cash flow: (100) 9 50 60
115
116 NPV(L) = $18.78 $ 18.78 = Uses NPV function.
117
118 (2.) What is the rationale behind the NPV method? According to NPV, which project or projects should be accepted if
119 they are independent? Mutually exclusive?
120
 A B C D E F G H
121
122 The NPV method of capital budgeting dictates that all independent projects that have positive NPV should accepted. The
123 rationale behind that assertion arises from the idea that all such projects add wealth, and that should be the overall goal of
the manager in all respects. If strictly using the NPV method to evaluate two mutually exclusive projects, you would want
124 to accept the project that adds the most value (i.e. the project with the higher NPV). Hence, if considering the above two
125 projects, you would accept both projects if they are independent, and you would only accept Project S if they are mutually
126 exclusive.
127
128 (3.) Would the NPVs change if the cost of capital changed? Answer: See Chapter 7 Mini Case Show
129
130 e. (1.) Define the term internal rate of return (IRR). What is each project's IRR?
131
132 Internal Rate of Return (IRR)
133
134 The internal rate of return is defined as the discount rate that equates the present value of a project's cash inflows to its
outflows. In other words, the internal rate of return is the interest rate that forces NPV to zero. The to its outflows. In
135 other words, the internal rate of return is the interest rate that forces NPV to zero. The calculation for IRR can be tedious,
136 but Excel provides an IRR function that merely requires you to access the function and enter the array of cash flows. The
137 IRR's for Project S and L are shown below, along with the data entry for Project S.
138
139 Expected after-tax
140 net cash flows (CFt)
141 Year (t) Project S Project L
142 0 ($100) ($100)
143 1 70 10 IRR S = 23.56%
144 2 50 60 IRR L = 18.13% The IRR function assumes
payments occur at end of
145 3 20 80 periods, so that function
146 does not have to be
147 adjusted.
148 C142:C145
149 Notice that for IRR you
150 must specify all cash flows,
151 including the time zero
152 cash flow. This is in
contrast to the NPV
153
function, in which you
154 specify only the future cash
155 flows.
156
157
158
159 (2.) What is the logic behind the IRR method? According to IRR, which projects should be accepted if they are
160 independent? Mutually exclusive?
161 (3.) Would the projects' IRRs change if the cost of capital changed?
162
163
164 The IRR method of capital budgeting maintains that projects should be accepted if their IRR is greater than the cost of
165 capital. Strict adherence to the IRR method would further dictate that mutually exclusive projects should be chosen on the
basis of the greatest IRR. In this scenario, both projects have IRR's that exceed the cost of capital (10%) and both should
166 be accepted, if they are independent. If, however, the projects are mutually exclusive, we would chose Project S. Recall,
that this was our determination using the NPV method as well. The question that naturally arises is whether or not the
NPV and IRR methods will always agree.
 The IRR method of capital budgeting maintains that projects should be accepted if their IRR is greater than the cost of
capital. Strict adherence to the IRR method would further dictate that mutually exclusive projects should be chosen on the
basis of the greatest IRR. In this scenario, both projects have IRR's that exceed the cost of capital (10%) and both should
A
be accepted, if they B C If, however,
are independent. D the projectsEare mutuallyFexclusive, weGwould chose Project
H S. Recall,
167 that this was our determination using the NPV method as well. The question that naturally arises is whether or not the
168 NPV and IRR methods will always agree.
169
170
171 When dealing with independent projects, the NPV and IRR methods will always yield the same accept/reject result.
'However, in the case of mutually exclusive projects, NPV and IRR can give conflicting results. One shortcoming of the
172 internal rate of return is that it assumes that cash flows received are reinvested at the project's internal rate of return,
173 which is not usually true. The nature of the congruence of the NPV and IRR methods is further detailed in a latter section
174 of this model.
175
176 (4.) How is the IRR on a project related to the YTM on a bond?
177
178 Constant Cash Flows
179
180 Year (t) Cash Flow
181 0 ($100) 0 1 2 3
182 1 40 (100) 40 40 40
183 2 40
184 3 40
185 IRR = 9.70% Note: You can use the Rate function if
186 payments are constant.
187 Similarity to a bond:
188
189
190 0 1 2 3 4 5 6 7
191 (1,134) 90 90 90 90 90 90 90
192
193
194 IRR = 7.08%
195
196
197
198 NPV Profiles
199 f. Draw NPV profiles for Projects L and S. At what discount rate do the profiles cross?
200
201 Project S Project L
202 WACC $19.98 WACC $18.78
203 0% 0%
204 2% 2%
205 4% 4%
206 6% 6%
207 8% 8%
208 10% 10%
209 12% 12%
210 14% 14%
211 16% 16%
212 18% 18%
 A B C D E F G H
213 20% 20%
214 22% 22%
215 24% 24%
216
217 NPV Profile of Project S and L
218
219 12.00
220
221 10.00 Crossover Rate =
8.7%
NPV

222 8.00
223 Project
6.00 S
224 Project
L
225 4.00
226
2.00 Project S-
227 IRR
228 0.00
229 0% 2% 4% 6% 8% 10% 12%
Cost of 14%
Capital 16% 18% 20% 22% 24%
Project L- IRR
230
231
232
233 (2.) Look at your NPV profile graph without referring to the actual NPVs and IRRs. Which project or projects should be
234 accepted if they are independent? Mutually exclusive? Explain. Are your answers correct at any cost of capital less than
235 23.6 percent?
236
237
238 Previously, we had discussed that in some instances the NPV and IRR methods can give conflicting results. First, we
239 should attempt to define what we see in this graph. Notice, that the two project profiles (S and L) intersect the x-axis at
costs of capital of 18.13% and 23.56%, respectively. Not coincidently, those are the IRR's of the projects. If we think
240 about the definition of IRR, we remember that the internal rate of return is the cost of capital at which a project will have
241 an NPV of zero. Looking at our graph, it is a logical conclusion that the IRR of a project is defined as the point at which its
242 profile intersects the x-axis.
243
244 g. (1.) What is the underlying cause of ranking conflicts between NPV and IRR?
245
246 (2.) What is the "reinvestment rate assumption," and how does it affect the NPV versus IRR conflict? Answer: See
247 Chapter 7 Mini Case Show
248
249 (3.) Which method is the best? Why? Answer: See Chapter 7 Mini Case Show
250
251
252 Looking further at the NPV profiles, we see that the two project profiles intersect at a point we shall call the crossover
253 point. We observe that at costs of capital greater than the crossover point, the project with the greater IRR (Project S, in
254 this case) also has the greater NPV. But at costs of capital less than the crossover point, the project with the lesser IRR has
the greater NPV. This relationship is the source of discrepancy between the NPV and IRR methods. By looking at the
255 graph, we see that the crossover appears to occur at approximately 8.7%. Luckily, there is a more precise way of
256 determining crossover. To find crossover, we will find the difference between the two projects cash flows in each year, and
257 then find the IRR of this series of differential cash flows.
258
 A B C D E F G H
259 Expected after-tax
260 net cash flows (CFt) Cash flow
261 Year (t) Project S Project L differential
262 0 ($100) ($100) 0
263 1 70 10 60
264 2 50 60 (10)
265 3 20 80 (60)
266
267
268 IRR = Crossover rate = 8.68%
269
270
271 The intuition behind the relationship between the NPV profile and the crossover rate is as follows: (1) Distant cash flows
are heavily penalized by high discount rates--the denominator is (1+r)t, and it increases geometrically, hence gets very
272 large at high values of t. (2) Long-term projects like L have most of their cash flows coming in the later years, when the
273 discount penalty is largest, hence they are most severely impacted by high capital costs. (3) 'Therefore, Project L's NPV
274 profile is steeper than that of S. (4) Since the two profiles have different slopes, they cross one another.
275
276 Modified Internal Rate of Return (MIRR)
277
278 h. (1.) Define the term modified IRR (MIRR). Find the MIRRs for Projects L and S.
279
280
The modified internal rate of return is the discount rate that causes a project's cost (or cash outflows) to equal the 'present
281 value of the project's terminal value. The terminal value is defined as the sum of the future values of the 'project's cash
282 inflows, compounded at the project's cost of capital. To find MIRR, calculate the PV of the outflows 'and the FV of the
283 inflows, and then find the rate that equates the two. Or, you can solve using the MIRR function.
284
285 WACC = 10% MIRRS = 16.89%
286 Project S MIRRL = 16.50%
287 10%
288 0 1 2 3
289 (100) 70 50 20
290 B294:E294
291 Project L B287
292 B287
293 0 1 2 3
294 (100) 10 60 80
295 66
296 12.1
297
298 PV : (100) TV = 158
299
300
301 (2.) What are the MIRR's advantages and disadvantages vis-a-vis the regular IRR? What are the MIRR's advantages
302 and disadvantages vis-a-vis the NPV?
303
 A B C D E F G H
304 The advantage of using the MIRR, relative to the IRR, is that the MIRR assumes that cash flows received are reinvested at
305 the cost of capital, not the IRR. Since reinvestment at the cost of capital is more likely, the MIRR is a better indicator of a
306 project's profitability. Moreover, it solves the multiple IRR problem, as a set of cash flows can have but one MIRR .
307
308
Note that if negative cash flows occur in years beyond Year 1, those cash flows would be discounted at the cost of capital
309 and added to the Year 0 cost to find the total PV of costs. If both positive and negative flows occurred in some year, the
310 negative flow should be discounted, and the positive one compounded, rather than just dealing with the net cash flow. This
311 makes a difference.
312
313 Also note that Excel's MIRR function allows for discounting and reinvestment to occur at different rates. Generally,
314 MIRR is defined as reinvestment at the WACC, though Excel allows the calculation of a special MIRR where reinvestment
315 occurs at a different rate than WACC.
316
317
318 Finally, it is stated in the text, when the IRR versus the NPV is discussed, that the NPV is superior because (1) the NPV
assumes that cash flows are reinvested at the cost of capital whereas the IRR assumes reinvestment at the IRR, and (2) it is
319 more likely, in a competitive world, that the actual reinvestment rate is more likely to be the cost of capital than the IRR,
320 especially if the IRR is quite high. The MIRR setup can be used to prove that NPV indeed does assume reinvestment at the
321 WACC, and IRR at the IRR.
322
323
324 Multiple IRR's
325
326
i. As a separate project (Project P), the firm is considering sponsoring a pavilion at the upcoming World's Fair. The
327 pavilion would cost $800,000, and it is expected to result in $5 million of incremental cash inflows during its 1 year of
328 operation. However, it would then take another year, and $5 million of costs, to demolish the site and return it to its
329 original condition. Thus, Project P's expected net cash flows look like this (in millions of dollars):
330
331 Project M: 0 1 2
332 (800.0) 5,000 (5,000)
333
334 The project is estimated to be of average risk, so its cost of capital is 10 percent.
335
336 (1.) What are normal and nonnormal cash flows? Answer: See Chapter 7 Mini Case Show
337
338 (2.) What is Project P's NPV? What is its IRR? Its MIRR?
339
340 We will solve this IRR twice, the first time using the default guess of 10%, and the second time we will enter a guess of
341 200%. Notice, that the first IRR calculation is exactly as it was above.
342
343
344 IRR M 1 = 25.0% MIRR = 5.6%
345
346
347
348
C332:E332
349 IRR M 2 = 400%
200%
 A B C D E F G H
200%
350
351
352
353
354
355
356
357
358
359 The two solutions to this problem tell us that this project will have a positive NPV for all costs of capital between 25% and
360 400%. We illustrate this point by creating a data table and a graph of the project NPVs.
 A B C D E F G H
361
362 0 1 2
363 (800.0) 5,000 (5,000)
364
365 (3.) Draw Project P's NPV profile. Does Project P have normal or nonnormal cash flows? Should this project be accepted
366
367 r = 25.0%
368 NPV = 0.00
369
370 NPV
371 r $0.0 Multiple Rates of Return
372 0%
373 25%
$12.00
374 50%
375 75%
376 100% Max. $10.00
377 125%
378 150% $8.00
379 175%
380 200% $6.00
381 225%
382 250%
$4.00
383 275%
384 300%
385 325% $2.00
386 350%
387 375% $0.00
388 400% -100% 0% 100% 200% 300% 400% 500%
389 425%
390 450%
391 475%
392 500%
393 525%
394 550%
395
396
397
398 PROJECTS WITH UNEQUAL LIVES
399
400 j. In an unrelated analysis, Axis must choose between the following two mutually exclusive projects:
401
402 The projects provide a necessary service, so whichever one is selected is expected to be repeated into the foreseeable future.
403 Both projects have a 10 percent cost of capital.
404
405 (1.) What is each project’s initial NPV without replication?
406
 A B C D E F G H
407 Project L WACC: 10.0%
408 End of Period:
409
410 0 1 2 3 4
411 ($100) $33.5 $33.5 $33.5 $33.5
412
413 NPV $6.19
414
415
416 Project S
417 End of Period:
418
419 0 1 2 3
420 ($100) $60 $60
421
422 NPV $4.13
423
424 (2.) Now apply the replacement chain approach to determine the projects’ extended NPVs. Which project should be
425 chosen?
426
427 Project S
428 End of Period:
429
430 0 1 2 3
431 ($100) $60 $60
432 ($100) $60 $60
433 ($100) $60 ($40) $60 $60
434
435 NPV $7.55
436
437 (3.) Repeat the analysis using the equivalent annual annuity approach
438
439 Equivalent Annual Annuity (EAA) Approach
440
441 Here are the steps in the EAA approach.
442 1. Find the NPV of each project over its initial life (we already did this in our previous analysis).
443 NPVL= 6.19
444 NPVS= 4.13
445
446 2. Convert the NPV into an annuity payment with a life equal to the life of the project.
447 EEAL= 2.38 Note: we used the Function Wizard for the PMT function.
448 EEAS= 1.95
449
450 (4.) Now assume that the cost to replicate Project S in 2 years will increase to $105,000 because of inflationary pressures.
451 How should the analysis be handled now, and which project should be chosen?
452
 A B C D E F G H
453 Project S
454 End of Period:
455
456 0 1 2 3
457 ($100) $60 $60
458 ($105) $60 $60
459 ($100) $60 ($45) $60 $60
460
461 NPV $3.42
462
463
464 ECONOMIC LIFE VS. PHYSICAL LIFE
465 k. Axis is also considering another project which has a physical life of 3 years; that is, the machinery will be totally worn
466 out after 3 years. However, if the project were terminated prior to the end of 3 years, the machinery would have a positive
467 salvage value. Here are the project’s estimated cash flows:
468
Operating Salvage
469 Year Cash Flow Value
470 0 ($5,000) $5,000
471 1 $2,100 $3,100
472 2 $2,000 $2,000
473 3 $1,750 $0
474
475 (1.) The cost of capital is 10%. If the asset is operated for the entire three years of its life, its NPV is:
476
PV of PV of
477 3-Year NPV = Initial Cost + Operating + Salvage
Cash Flow Value
478 = ($5,000.00) + $4,876.78 + $0.00
479 3-Year NPV = ($123.22)
480
481 The asset has a negative NPV if it is kept for three years. But even though the asset will last three years, it might be better
482 to operate the asset for either one or two years, and then salvage it.
483
484 (2.) Would the NPV change if the company planned to terminate the project at the end of Year 2?
485
PV of PV of
486 2-Year NPV = Initial Cost + Operating + Salvage
Cash Flow Value
487 = ($5,000.00) + $3,561.98 + $1,652.89
488 2-Year NPV = $214.88
489
490 (3.) At the end of Year 1? PV of PV of
491 1-Year NPV = Initial Cost + Operating + Salvage
Cash Flow Value
492 = ($5,000.00) + $1,909.09 + $2,818.18
493 1-Year NPV = ($272.73)
 A B C D E F G H
494
495 (4.) What is the project’s optimal (economic) life?
 I J K L M N O P Q
1 12/16/2001
2
3
4
5
6
repair parts used 7 in the after-
nancial officer, has
8 just handed
em to the firm's9ignition line; it
crease over time. Project S
10 lives, because
rojects have 3-year
11
ash flows (in thousands of
12
13
14
15
16 3
17 20
18
19
20
21 3
22 80
23
uded in these cash 24 flows.
25
h projects have26 risk
27 You must no
st of capital is 10%.
28
29
30
31
See Chapter 7 Mini32 Case Show
33
34
35
36
37
estment, and it38 was the first
which the cumulative cash inflows
39
and add to it unrecovered
ng, the shorter 40the payback
41
42
43
44
45
46 Click fx > Logical > AND > OK to get dialog box.
 I J K L M N O P Q
47 "AND" to determine
Use Logical Then specify you want TRUE if cumulative CF > 0 but the previous CF < 0.
48
the first positive cumulative CF. There will be one TRUE.
49 IF to find the Payback.
Use Logical Click fx > Logical > IF > OK. Specify that if true, the payback is the previous year plus a fraction, if
50 Max function to
Use Statistical Click fx > Statistical > MAX > OK > and specify range to find Payback.
51
display payback.
52
53
54
55
56
57
58
59
which project 60or projects should
are independent? 61 If they are
62
63
64
65
 I J K L M N O P Q
66
67
flows. The calculation of
t you must base68 the calculation
%. 69
70
71
72
73
74
75
76 Cash Flows Discounted back at 10%.
77
78
79
80
81
82
83
84
85
86
87
88
89in capital
y real usefulness
90
91
92 mark. While
e payback period
93
y analyzing projects. However,
d risk. 94
95
96
97
98
99
um of those discounted cash
100
101
102
103
104
105
106 Notice that the NPV function isn't really a Net present value.
Instead, it is the present value of future cash flows. Thus, you
107
specify only the future cash flows in the NPV function. To find the
108 true NPV, you must add the time zero cash flow to the result of the
109 NPV function.
110
111
 I J K L M N O P Q
112 B102
113
D106:F106
114
115
116
117
projects should118
be accepted if
119
120
 I J K L M N O P Q
121
tive NPV should 122accepted. The
that should be 123
the overall goal of
lusive projects, you would want
124
e, if considering the above two
125 are mutually
pt Project S if they
126
127
Case Show 128
129
130
131
132
133
a project's cash inflows to its
134
zero. The to its outflows. In
135can be tedious,
lculation for IRR
nter the array of136
cash flows. The
137
138
139
140
141
142
143
The IRR144function assumes
payments occur at end of
145
periods, so that function
does not146
have to be
adjusted.147
148
149IRR you
Notice that for
must specify150all cash flows,
including the151
time zero
cash flow. This
152 is in
contrast to the NPV
153
function, in which you
specify only 154
the future cash
flows. 155
156
157
158
be accepted if 159
they are
160
161
162
163
RR is greater than
164 the cost of
projects should be chosen on the
165
capital (10%) and both should
166 S. Recall,
would chose Project
y arises is whether or not the
 I J K L M N O P Q
167
168
169
170
same accept/reject
171 result.
ults. One shortcoming of the
172of return,
ect's internal rate
urther detailed 173
in a latter section
174
175
176
177
178
179
180
181
182
183
184
ou can use the 185
Rate function if
186
187
188
189
190 8 9 10
191 90 90 1,090
192
193
194
195
196
197
198
199
200
201
202
203
204
205
206
207
208
209
210
211
212
 I J K L M N O P Q
213
214
215
216
217
218
219
220
221
222
223
224
225
226
227
228
229
230
231
232
233
ich project or projects should be
t at any cost of234
capital less than
235
236
237
nflicting results.
238First, we
and L) intersect
239the x-axis at
of the projects. If we think
ital at which a 240
project will have
s defined as the241
point at which its
242
243
244
245
IRR conflict? 246
Answer: See
247
248
249
250
251
252crossover
t we shall call the
h the greater IRR253(Project S, in
e project with the
254lesser IRR has
methods. By looking at the
s a more precise255way of
ects cash flows 256
in each year, and
257
258
 I J K L M N O P Q
259
260
261
262
263
264
265
266
267
268
269
270
follows: (1) Distant
271 cash flows
eometrically, hence gets very
272 when the
g in the later years,
273 L's NPV
) 'Therefore, Project
one another. 274
275
276
277
278
279
280
h outflows) to equal the 'present
e values of the 281
'project's cash
e outflows 'and282the FV of the
nction. 283
284
285
286
287
288
289
B294:E294290
291
292
293
294
295
296
297
298
299
300
301 advantages
hat are the MIRR's
302
303
 I J K L M N O P Q
304
h flows received are reinvested at
305indicator of a
MIRR is a better
306MIRR .
can have but one
307
308
scounted at the cost of capital
ws occurred in309some year, the
310cash flow. This
aling with the net
311
312
different rates.313
Generally,
pecial MIRR where314 reinvestment
315
316
317
uperior because 318(1) the NPV
vestment at the IRR, and (2) it is
319
he cost of capital than the IRR,
320
does assume reinvestment at the
321
322
323
324
325
326
coming World's Fair. The
inflows during327
its 1 year of
328 it to its
he site and return
ollars): 329
330
331
332
333
334
335
ow 336
337
338
339
340a guess of
time we will enter
341
342
343
344
345
346
347
348
349
 I J K L M N O P Q
350
351
352
353
354
355
356
357
358
359
osts of capital between 25% and
360
 I J K L M N O P Q
361
362
363
364
365
? Should this project be accepted
366
367
368
369
370
Return 371
372
373
374
375
376
377
378
379
380
381
382
383
384
385
386
387
00% 400% 388 500%
389
390
391
392
393
394
395
396
397
398
399
400
401
402
eated into the foreseeable future.
403
404
405
406
 I J K L M N O P Q
407
408
409
410
411
412
413
414
415
416
417
418
419
420
421
422
423
424 should be
Vs. Which project
425
426
427
428
429
430
431
432
433
434
435
436
437
438
439
440
441
442
443
444
445
446
447
for the PMT function.
448
449
450 pressures.
ecause of inflationary
451
452
 I J K L M N O P Q
453
454
455
456
457
458
459
460
461
462
463
464
machinery will465
be totally worn
466have a positive
machinery would
467
468
469
470
471
472
473
474
e, its NPV is: 475
476

477

478
479
480
481
st three years, it might be better
482
483
f Year 2? 484
485

486

487
488
489
490
491
492
493
 I J K L M N O P Q
494
495
 R S T U
47
48
49 year plus a fraction, if false, then 0.
ck is the previous
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
 R S T U
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
100
101
102
103
104
105
106
107
108
109
110
111
 R S T U
112
113
114
115
116
117
118
119
120
 R S T U
121
122
123
124
125
126
127
128
129
130
131
132
133
134
135
136
137
138
139
140
141
142
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144
145
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148
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165
166