1.) Fuzzy Button Clothing Company is analyzing a project that requires an initial investment of $450,000. The project’s expected cash flows are:
Year |
Cash Flow |
---|---|
Year 1 | $300,000 |
Year 2 | –125,000 |
Year 3 | 400,000 |
Year 4 | 500,000 |
Fuzzy Button Clothing Company’s WACC is 7%, and the project has the same risk as the firm’s average project. Calculate this project’s modified internal rate of return (MIRR):
a.) 24.54%
b.) 18.70%
c.) 21.03%
d.) 23.37%
2.) If Fuzzy Button Clothing Company’s managers select projects based on the MIRR criterion, they should (accept/reject) this independent project.
3.) Which of the following statements best describes the difference between the IRR method and the MIRR method?
a.) The IRR method uses the present value of the initial investment to calculate the IRR. The MIRR method uses the terminal value of the initial investment to calculate the MIRR.
b.) The IRR method uses only cash inflows to calculate the IRR. The MIRR method uses both cash inflows and cash outflows to calculate the MIRR.
c.)The IRR method assumes that cash flows are reinvested at a rate of return equal to the IRR. The MIRR method assumes that cash flows are reinvested at a rate of return equal to the cost of capital.
1.) Fuzzy Button Clothing Company is analyzing a project that requires an initial investment of $450,000....
Fuzzy Button Clothing Company is analyzing a project that requires an initial investment of $600,000. The project's expected cash flows are: Year Year 1 Year 2 Year 3 Year 4 Cash Flow $275,000 -100,000 425,000 400,000 Fuzzy Button Clothing Company'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): 15.14% 15.94% 19.13% 18.33% O O If Fuzzy Button Clothing Company's managers select projects based on...
Fuzzy Button Clothing Company is analyzing a project that requires an initial investment of $400,000. The project's expected cash flows are: Cash Flow Year Year 1 Year 2 Year 3 Year 4 $325,000 -200,000 475,000 425,000 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): 28.70% 23.92% 21.53% 26.31% If Fuzzy Button Clothing Company's managers select projects based on the MIRR...
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Fuzzy Button Clothing Company is analyzing a project that requires an initial investment of $450,000. The project's expected cash flows are: Year Year 1 Year 2 Year 3 Year 4 Cash Flow $325,000 -125,000 450,000 450,000 Fuzzy Button Clothing Company's WACC is 9%, and the project has the same risk as the firm's average project. Calculate this project's modified internal rate of return (MIRR): O 23.88% 20.11% 25.14% 28.91% If Fuzzy Button Clothing Company's managers select...
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...
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: Fuzzy Button Clothing Company is analyzing a project that requires an initial investment of $450,000. The...
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.
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...
Cute Camel Woodcraft Company is analyzing a project that requires an initial investment of $500,000. The project's expected cash flows are: Year 1 Year 2 Year 3 Year 4 $275,000 -150,000 500,000 400,000 Cute Camel Woodcraft Company's WACC is 9%, and the project has the same risk as the firm's average project. Calculate this project's modified 21.06% 18.05% 19.06% 20.06% If Cute Camel Woodcraft Company's managers select projects based on the MIRR criterion, they should this independent project. Which of...
Blue Llama Mining Company is analyzing a project that requires an initial investment of $600,000. The project's expected cash flows are: Year Year 1 Cash Flow $275,000 Year 2 -125,000 Year 3 475,000 Year 4 500,000 Blue Llama Mining Company'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): 17.61% 20.39% 18.54% 19.47% If Blue Llama Mining Company's managers select projects based on the MIRR...
Consider the following situation: Fuzzy Button Clothing Company is analyzing a project that requires an initial investment of $400,000. The project's expected cash flows are: Year Year 1 Year 2 Year 3 Year 4 Cash Flow $350,000 -200,000 475,000 475,000 Fuzzy Button Clothing Company's WACC is 7%, and the project has the same risk as the firm's average project. Calculate this project's modified internal rate of return (MIRR): O 30.24% 20.16% O 22.68% O 25.20% If Fuzzy Button Clothing Company's...
Cold Goose Metal Works Inc. is analyzing a project that requires an initial investment of $500,000. The project's expected cash flows are: Year Year 1 Year 2 Year 3 Year 4 Cash Flow $300,000 -175,000 475,000 425,000 Cold Goose Metal Works Inc.'s WACC is 9%, and the project has the same risk as the firm's average project. Calculate this project's modified internal rate of return (MIRR): O 19.75% 22.71% 17.78% O 23.70% this If Cold Goose Metal Works Inc.'s managers...