ABC Inc. is considering a project with following cash flow. Cash flow in parentheses denote negative flows:
Year Cash Flow
K is 10 percent.The project’s modified internal rate of return (MIRR) is 16.38%.
1.
((120000*1.1^3+120000*1.1^2+120000)/(200000+x/1.1^3))^(1/4)-1=16.38%
=>x=((120000*1.1^3+120000*1.1^2+120000)/(1+16.38%)^4-200000)*1.1^3
=>x=42098.78760368
Cash flow in year 3=-42098.78760368
2.
=-200000+120000/1.1+120000/1.1^2-42098.78760368/1.1^3+120000/1.1^4
=58596.63522707
ABC Inc. is considering a project with following cash flow. Cash flow in parentheses denote negative...
You are considering an investment project with the cash flows of -400 (the initial cash flow), 700 (cash flow at year 1), -200 (cash flow at year 2). Given the discount rate of 12%, compute the Modified Internal Rate of Return (MIRR) using the discountingapproach. 31.91% 25.13% 27.55% 29.71%
Capital Budgeting: Homework 1. Waste Management has a WACC of 12 percent and it is considering a project with a cost of $52,125. The project’s expected net cash inflows are $12,000 per year for 8 years. What is the project’s payback period? What is the project’s net present value (NPV)? What is the profitability index? What is the project’s internal rate of return (IRR)? What is the project’s modified internal rate of return (MIRR)?
A firm with a 9 percent cost of capital is considering a project for this year’s capital budget. The project’s expected after-tax cash flows are as follows: Year: 0 1 2 3 4 Cash flow: -$15,000 $5,700 $4,700 $6,900 $6,800 Calculate the project’s modified internal rate of return (MIRR). a. 60.67% b. 20.96% c. 28.87% d. 16.14% e. 12.59%
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...
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 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 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...
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: Cute Camel Woodcraft Company is analyzing a project that requires an initial investment of $2,750,000. The project’s expected cash flows are: Year Cash...
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 $2,500,000. The...
Edelman Electric Systems is considering a project that has the following cash flow and WACC data. What is the project’s MIRR? Note that a project’s projected MIRR can be less than the WACC (and even negative), in which case it will be rejected. WACC: 10.00% Year: 0 1 2 3 Cash flows: –$800 $350 $350 $350 a. 11.82% b. 9.58% c. 10.64% d. 13.14%