• Based on the cash flows shown in the chart below, compute the IRR and MIRR for Project Erie. Suppose that the appropriate cost of capital is 12 percent. Advise the organization about whether it should accept or reject the project.

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17 18 19 20 21 22 23 24 25 26 27 28 A Based on the cash flows shown in the chart below, compute the IRR and MIRR for Project Erie. Suppose that the appropriate cost of capital is 12 percent. Advise the organization about whether it should accept or reject the project. B IRR = CFn/(1+ IRR)^n Excel formula: =IRR(values) Note: must include a positive and negative input MIRR Excel formula: =MIRR(values, finance_rate, reinvest_rate) Notes: IRR will equal the expected rate of return; compare against cost of capital (aka required rate of return). If IRR is greater than or equal to cost of capital, accept the project. We only want to invest in projects where the rate we expect to get (IRR) is larger than the rate investors require (i) based on the project's expected return, including risk (Cornett et al., 2019). Recommendation: This project should be rejected. The IRR and MIRR both fall below the 12% cost of capital and would not be worth the investment. Discount Rate (i) Period 0 1 2 3 4 5 NPV D Cash Flow IRR MIRR 12% -12000 2360 4390 1520 980 1250 E 1.12 ($3,979.18) -5.2% 3.33% 17 18 19 20 21 22 23 24 25 26 27 28 A Based on the cash flows shown in the chart below, compute the IRR and MIRR for Project Erie. Suppose that the appropriate cost of capital is 12 percent. Advise the organization about whether it should accept or reject the project. B IRR = CFn/(1+ IRR)^n Excel formula: =IRR(values) Note: must include a positive and negative input MIRR Excel formula: =MIRR(values, finance_rate, reinvest_rate) Notes: IRR will equal the expected rate of return; compare against cost of capital (aka required rate of return). If IRR is greater than or equal to cost of capital, accept the project. We only want to invest in projects where the rate we expect to get (IRR) is larger than the rate investors require (i) based on the project's expected return, including risk (Cornett et al., 2019). Recommendation: This project should be rejected. The IRR and MIRR both fall below the 12% cost of capital and would not be worth the investment. Discount Rate (i) Period 0 1 2 3 4 5 NPV D Cash Flow IRR MIRR 12% -12000 2360 4390 1520 980 1250 E 1.12 ($3,979.18) -5.2% 3.33%

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To compute the IRR Internal Rate of Return MIRR Modified Internal Rate of Return and NPV Net Present ... View the full answer