ZuoTi.Pro
Question

Green Caterpillar Garden Supplies Inc. is analyzing a project that requires an initial investment of $2,750,000....

Green Caterpillar Garden Supplies Inc. is analyzing a project that requires an initial investment of $2,750,000. The project’s expected cash flows are: Year Cash Flow Year 1 $275,000 Year 2 –150,000 Year 3 475,000 Year 4 400,000

Green Caterpillar Garden Supplies Inc.’s WACC is 8%, and the project has the same risk as the firm’s average project. Calculate this project’s modified internal rate of return (MIRR):

16.12%

19.92%

-18.67%

17.07%

If Green Caterpillar Garden Supplies Inc.’s managers select projects based on the MIRR criterion, they should reject or accept this independent project.

Which of the following statements about the relationship between the IRR and the MIRR is correct?

A typical firm’s IRR will be equal to its MIRR.

A typical firm’s IRR will be greater than its MIRR.

A typical firm’s IRR will be less than its MIRR.

business   finance   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

✔ Recommended Answer
Answer #1

Cash flows Fv@ 8% Future value Year $275,000 $346,420.80 $0.00 1 1.2597 $0 1.1664 2 $475,000 $513,000.00 1.0800 $400,000 $400

1 0
Add a comment
Know the answer?
Add Answer to:
Green Caterpillar Garden Supplies Inc. is analyzing a project that requires an initial investment of $2,750,000....
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Similar Homework Help Questions

  • Green Caterpillar Garden Supplies Inc. is analyzing a project that requires an initial investment of $500,000....

    Green Caterpillar Garden Supplies Inc. is analyzing a project that requires an initial investment of $500,000. The project’s expected cash flows are: Year Cash Flow Year 1 $275,000 Year 2 –125,000 Year 3 450,000 Year 4 450,000 Green Caterpillar Garden Supplies Inc.’s WACC is 8%, and the project has the same risk as the firm’s average project. Calculate this project’s modified internal rate of return (MIRR): 19.52% 20.55% 18.50% 22.61% If Green Caterpillar Garden Supplies Inc.’s managers select projects based...

  • The IRR evaluation method assumes that cash flows from the project are reinvested at the same...

    The IRR evaluation method assumes that cash flows from the project are reinvested at the same rate equal to the IRR. However, in reality the reinvested cash flows may not necessarily generate a return equal to the IRR. Thus, the modified IRR approach makes a more reasonable assumption other than the project’s IRR. Consider the following situation: Green Caterpillar Garden Supplies Inc. is analyzing a project that requires an initial investment of $2,750,000. The project’s expected cash flows are: Year...

  • Cold Goose Metal Works Inc. is analyzing a project that requires an initial investment of $2,225,000....

    Cold Goose Metal Works Inc. is analyzing a project that requires an initial investment of $2,225,000. The project’s expected cash flows are: Year Cash Flow Year 1 $375,000 Year 2 –200,000 Year 3 450,000 Year 4 500,000 Cold Goose Metal Works Inc.’s WACC is 10%, and the project has the same risk as the firm’s average project. Calculate this project’s modified internal rate of return (MIRR): 33.01% 22.01% -11.08% 24.76% If Cold Goose Metal Works Inc.’s managers select projects based...

  • Fuzzy Button Clothing Company is analyzing a project that requires an initial investment of $3,225,000. The...

    Fuzzy Button Clothing Company is analyzing a project that requires an initial investment of $3,225,000. The project’s expected cash flows are: Year Cash Flow Year 1 $375,000 Year 2 -175,000 Year 3 $425,000 Year 4 $450,000 Fuzzy Button Clothing Company’s WACC is 8%, and the project has the same risk as the firm’s average project. Calculate this project’s modified internal rate of return (MIRR): A. 17.33% B.14.85% C.-20.01% D.18.15% If Fuzzy Button Clothing Company’s managers select projects based on the...

  • Consider the case of Green Caterpillar Garden Supplies Inc.: Last Tuesday, Green Caterpillar Garden Supplies Inc....

    Consider the case of Green Caterpillar Garden Supplies Inc.: Last Tuesday, Green Caterpillar Garden Supplies Inc. lost a portion of its planning and financial data when both its main and its backup servers crashed. The company’s CFO remembers that the internal rate of return (IRR) of Project Zeta is 14.6%, but he can’t recall how much Green Caterpillar originally invested in the project nor the project’s net present value (NPV). However, he found a note that detailed the annual net...

  • The IRR evaluation method assumes that cash flows from the project are reinvested at a rate...

    The IRR evaluation method assumes that cash flows from the project are reinvested at a rate equal to the project’s IRR. However, in reality, the reinvested cash flows may not necessarily generate a return equal to the IRR. Thus, using the modified IRR approach, you can make a more reasonable estimate of a project’s rate of return than the project’s IRR can. Consider the following situation: Green Caterpillar Garden Supplies Inc. is analyzing a project that requires an initial investment...

  • Green Caterpillar Garden Supplies Inc. is considering a one-year project that requires an initial investment of...

    Green Caterpillar Garden Supplies Inc. is considering a one-year project that requires an initial investment of $600,000; however, in raising this capital, Green Caterpillar will incur an additional flotation cost of 2%. At the end of the year, the project is expected to produce a cash inflow of $840,000. The rate of return that Green Caterpillar expects to earn on the project after its flotation costs are taken into account is a. 29.80 b.22.35 c.37.25 d.33.53

  • Suppose Green Caterpillar Garden Supplies Inc. is evaluating a proposed capital budgeting project (project Alpha) that...

    Suppose Green Caterpillar Garden Supplies Inc. is evaluating a proposed capital budgeting project (project Alpha) that will require an initial investment of $450,000. The project is expected to generate the following net cash flows: Year Year 1 Year 2 Year 3 Year 4 Cash Flow $325,000 $400,000 $475,000 $475,000 Green Caterpillar Garden Supplies Inc.'s weighted average cost of capital is 9%, and project Alpha has the same risk as the firm's average project. Based on the cash flows, what is...

  • 4. Modified internal rate of return (MIRR) The IRR evaluation method assumes that cash flows from...

    4. Modified internal rate of return (MIRR) The IRR evaluation method assumes that cash flows from the project are reinvested at the same rate equal to the IRR. However, in reality the reinvested cash flows may not necessarily generate a return equal to the IRR. Thus, the modified IRR approach makes a more reasonable assumption other than the project's IRR. Consider the following situation: Green Caterpillar Garden Supplies Inc. is analyzing a project that requires an initial investment of $2,225,000....

  • 9. Modified internal rate of return (MIRR) Aa Aa The IRR evaluation method assumes that cash...

    9. Modified internal rate of return (MIRR) Aa Aa The IRR evaluation method assumes that cash flows from the project are reinvested at the same rate equal to the IRR. However, in reality the reinvested cash flows may not necessarily generate a return equal to the IRR. Thus, the modified IRR approach makes a more reasonable assumption other than the project's IRR. Consider the following situation: Green Caterpillar Garden Supplies Inc. is analyzing a project that requires an initial investment...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT