A project costs $1,000 today and is expected to produce cash inflows of $800 at the end of each of the next two years.If the firm's cost of capital is 10%,what is the modified internal rate of return? Round answer to the nearest whole percent.
A) 30%
B) 23%
C) 13%
D) 21%
E) 33%

Question

Quizplus · Accepted Answer

Step 1 - Find the PV of all cash outflows.
The initial investment is the only outflow, so PV = -1,000
Step 2 - Find the FV of all cash inflows.
FV = PMT 11ea7fdb_fbe9_f2a4_a768_d3f0fa82aa40_TB2902_11 FV = 800 11ea7fdb_fbe9_f2a5_a768_7307bbeb6b2b_TB2902_11 = $1,680
Step 3 - Use a financial calculator to solve for the interest rate.N = 2, PV = -1,000, PMT = 0, FV = 1,680, CPT I/Y = 29.61, or 30%

A Project Costs $1,000 Today and Is Expected to Produce