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Fernando Designs is considering a project that has the following cash flows and WACC data. What is the project's discounted payback period? (6 points) What is the project’s modified internal rate of return?

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Answer:

Discounted Payback period 3 years

Modified Internal rate of return 4.833%

Explanation:

Fernando Designs has following cash flows ,

year 1 : -$900

Year 2 : $500

Year 3 : $500

Year 4 : $500

Using 10% discount factor the cashflows will be,

discounted values

Year 1 : -900

Year 2 : 454.54

Year 3 : 445.45

Year 4 : 4132231

Payback period is -900 + 454.54 +445.45 = 3 years.

Modified Internal rate of return; [tex]\sqrt[n]{\frac{FV of cash inflows}{PV of cash outflow} }[/tex]

[tex]\sqrt[4]{\frac{1314}{900} }[/tex] = 4.833%

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