Answer:
Payback period (years): 4.23 years
NPV: $6,685
IRR: 16%
MIRR: 14%
The project is financially acceptable because IRR and MIRR is greater than cost of capital
Explanation:
Payback period is calculating the number of year when cash inflow can cover cash outflow (regardless the present value of cash inflow).
As we can easily estimate, cash inflow in 5 year can cover the investment.
Then payback period = 4 years + 12000/52,125 = 4.23 years
We can use excel to calculate NPV, IRR, MIRR in the formula as below
Net present value of project: NPV=(discounting rate, cash outflow, cash inflow) = (12%, -52125,12000,12000......,12000) = $6,685
Internal rate of return: IRR= (cash outflow, cash inflow) = ( -52125,12000,12000,......,12000) = 16%
Modified internal rate of return: MIRR = (cash outflow, cash inflow, IRR, cost of capital) = (-52125,12000,12000......,12000,16%,12%) = 14%
<em>Please see attachment for more details.</em>
