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?

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)

115000  0.901   13,514  

215000  0.812   12,174  

315000  0.731   10,968  

415000  0.659   9,881  

515000  0.593   8,902  

615000  0.535   8,020  

715000  0.482   7,225  

815000  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.  

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1. c

2. b

3. a

4. c

5. a

6. b

7. c

8. c

9.b

10. d

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