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The expected cash flows of a project are as follows. Year Cash Flow -100000, 20,000 ,30,000 40,000 ,50,000 30,000 calculate the modified internal rate of return and payback period

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 10P

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Concept explainers

Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.

Question

The expected cash flows of a project are as follows. Year Cash Flow -100000, 20,000 ,30,000 40,000 ,50,000 30,000 calculate the modified internal rate of return and payback period

Definition Definition Discount rate of a project wherein its net present value equals zero. Internal rate of return equates the present value of future cash flows with the initial investments. Internal rate of return helps to determine nominal cash flows.

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