ZuoTi.Pro
Question

MIRR

The Caffeine Coffee Company uses the MIRR. The firm has a cost of capital of 12 percent. The project being analyzed has a $27,000 initial investment and is expected to produce the following cash flows:

 

YearCash Flow
1$15,000     
212,000     
39,000     

 

a. What is the MIRR? (Use a Financial calculator to arrive at the answers. Round the final answer to 2 decimal places.)

 

MIRR             %

 

b. What is the traditional IRR? (Round the final answer to 1 decimal place.)

 

Traditional IRR             %


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

Homework Answers

Answer #1

a.

Initial investment = $27,000


Cash Flows:

Year 1 = $15,000

Year 2 = $12,000

Year 3 = $9,000


The company will recover its initial investment of $27,000 in the first 2 years. So, the payback period will be 2 years.


b.

Let IRR be i%


NPV = -$27,000 + $15,000/(1+i) + $12,000/(1+i)^2 + $9,000/(1+i)^3

0 = -$27,000 + $15,000/(1+i) + $12,000/(1+i)^2 + $9,000/(1+i)^3


Using financial calculator, i = 17.51%


IRR of the project is 17.51%


If the cost of capital is 12%, then the company should accept this project as its IRR is greater than the cost of capital.


answered by: Gavin
0 1
Add a comment
Know the answer?
Add Answer to:
MIRR
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

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • Problem 12-21 Modified internal rate of return [L012-4] The Caffeine Coffee Company uses the modified intermal...

    Problem 12-21 Modified internal rate of return [L012-4] The Caffeine Coffee Company uses the modified intermal rate of return. The firm has a cost of capital of 11 percent. The project being analyzed is as follows ($35,000 investment): Use Appendix A and Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods Year Cash Flow $17,000 15,000 10,000 What is the modified internal rate of return? (Do not round intermediate calculations. Enter...

  • The Green Goddess Company is considering the purchase of a new machine that would increase the...

    The Green Goddess Company is considering the purchase of a new machine that would increase the speed of manufacturing tires and save money. The net cost of the new machine is $55,000. The annual cash flows have the following projections. (Use a Financial calculator to arrive at the answers.) Year 1 2 3 UWN Cash Flow $29,000 27,000 27,000 32,000 10,000 a. If the cost of capital is 9 percent, what is the NPV? (Round the final answer to the...

  • IRR, MIRR, NVP a. Project M costs $45,000, its expected cash inflows are $8,000 per year for 8 years, and its WACC is 9%. What is the project's MIRR? Do not round intermediate calculations. Round...

    IRR, MIRR, NVP a. Project M costs $45,000, its expected cash inflows are $8,000 per year for 8 years, and its WACC is 9%. What is the project's MIRR? Do not round intermediate calculations. Round your answer to two decimal places.___% b. A company is analyzing two mutually exclusive projects, S and L, with the following cash flows: 0 1 2 3 4 Project S -$1,000 $883.36 $250 $5 $15 Project L -$1,000 $5 $240 $380 $807.41 The company's WACC...

  • Problem 11.21 (MIRR)

    Project A requires an initial outlay at t = 0 of $3,000, and its cash flows are the same in Years 1 through 10. Its IRR is 18%, and its WACC is 12%. What is the project's MIRR? Do not round intermediate calculations. Round your answer to two decimal places.  %

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

    . 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: Grey Fox Aviation Company is analyzing a project that requires an initial investment of $600,000. The...

  • 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: Grey Fox Aviation Company is analyzing a project that requires an initial investment of $550,000. The...

  • 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 retun equal to the IRR. Thus, the modified IRR approach makes a more reasonable assumption other than the project's IRR Consider the following situation: Celestial Crane Cosmetics is analyzing a project that requires an initial investment of $600,000. The project's...

  • 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: Blue Llama Mining Company is analyzing a project that requires an initial investment of $550,000. The...

  • 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: Fuzzy Button Clothing Company is analyzing a project that requires an initial investment of $450,000. The...

  • 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: Grey Fox Aviation Company is analyzing a project that requires an initial investment of $600,000. The...

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