The given information assumes that the investment is made on the 31st of December (end of year of year of investment), so year 0.
At the end of year 3, the NPV is -879.46, and at the end of year 4, the NPV is +2907.51 as you had it.
I believe payback period is usually expressed as the year that yields a positive NPV, because accounts cannot be assumed to be uniformly distributed throughout the year, so that makes discounted payback period equal to 4 years. However, do according to your teachers instructions (whether fractional years count or not).
IRR is the internal rate of return that brings NPV to zero. I get approximately 21.8803% instead of your value 22%. Check which one gives an NPV closer to zero.
I get for MIRR 16.512%
using MIRR=((3600*C^3+2400*C^2+2850*C+5200)/8500)^(1/4)-1
where C=1.0825
So in general, our numbers agree, it's just the rounding of results that probably made the difference.
The following is the cash flow forecast for Project A.
Time: 0,1,2,3,4
Project A: (8500), 3600, 2400, 2850, 5200
I need to find the discounted payback, NPV, IRR, and MIRR at a cost of capital of 8.25%.
I used Excel and got the following results:
Discounted payback period = 3.23 years
NPV = $2907.51
IRR = 22%
MIRR = 17%
Can anyone help me validate my results?
2 answers
Thank you so much, MathMate! Your explanations and confirmations are a tremendous help.
1 answer