Problem
A project has an initial cost of $45,000. The incremental inflows associated with the project are $20,000 in year 1, $15,000 in year 2, $10,000 in year 3 and $8,000 in year 4. All cash inflows are at the end of the year. The appropriate discount rate for this project is 8.0%. The component costs of capital and their weights are given below: (HINT: Possibly use Excel Worksheet)
kd = 10% wd = 45%
kp = 5% wp = 10%
ke = 8% we = 45%
T = 40%
a) What is the project's modified internal rate of return? Calculate to two decimal places.
b) What is the project's weighted-average cost of capital?