Fill This Form To Receive Instant Help

Help in Homework
trustpilot ratings
google ratings


Homework answers / question archive / Your Company is considering Project called Delimited, whose costs and cash flows are shown below: (5 points)                                      Year      Cash Flow                                                                          0          -$2,000                                      1             1,000                                                                     2                800                                      3                850                                             4             1,300                        The project is risky; the firm's cost of capital is 10 percent

Your Company is considering Project called Delimited, whose costs and cash flows are shown below: (5 points)                                      Year      Cash Flow                                                                          0          -$2,000                                      1             1,000                                                                     2                800                                      3                850                                             4             1,300                        The project is risky; the firm's cost of capital is 10 percent

Finance

Your Company is considering Project called Delimited, whose costs and cash flows are shown below: (5 points)

                                     Year      Cash Flow                                                         

                0          -$2,000                     

                1             1,000                                                    

                2                800                     

                3                850                            

                4             1,300                       

The project is risky; the firm's cost of capital is 10 percent. What is the modified internal rate of return (MIRR) and what is your recommendation to accept or reject the project.  The required rate of return is 16%

pur-new-sol

Purchase A New Answer

Custom new solution created by our subject matter experts

GET A QUOTE

Answer Preview

MIRR= (Future Value of Cash Inflows / Present Value of Cash Outflow)^(1 / Time Period) - 1

 

here,

Future value of cash inflow:

Year 1:

FV = PV*(1+r)^n

FV = 1000* (1+0.10)^3

=  $ 1,331

 

Year 2

FV = 800* (1+0.10)^2

= $968

 

Year 3

FV = 850* (1+0.10)^1

=$935

 

Year 4

FV = $1300

 

Total Value =$ 1,331+ $968+ $935+ $1300

=  $4,534

 

Present value of outflow = $2000

 

So,

MIRR= (4,534/ 2000)^ (1/4)- 1

= 0.22705 or 22.71%