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Multiple Rates of Return The Ulmer Uranium Company is deciding whether or not to open a...

Multiple Rates of Return

The Ulmer Uranium Company is deciding whether or not to open a strip mine whose net cost is $4.4 million. Net cash inflows are expected to be $27.7 million, all coming at the end of Year 1. The land must be returned to its natural state at a cost of $25 million, payable at the end of Year 2.

  1. Plot the project's NPV profile.

Select the correct graph.

The correct graph is

.

  1. Should the project be accepted if r = 7%?


Should the project be accepted if r = 14%?


  • Can you think of some other capital budgeting situations in which negative cash flows during or at the end of the project's life might lead to multiple IRRs? The input in the box below will not be graded, but may be reviewed and considered by your instructor.

    blank

  • What is the project's MIRR at r = 7%? Round your answer to two decimal places.
    %

    What is the project's MIRR at r = 14%? Round your answer to two decimal places.
    %

    Calculate the two projects' NPVs. Round your answers to the nearest cent. Enter your answers in dollars. For ex: 1.2 million should be entered as 1,200,000. Enter negative answers with minus sign.

    Project 1    $  

    Project 2    $  

    Does the MIRR method lead to the same accept-reject decision as the NPV method?

Solutions

Expert Solution

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

jeff jeffy answered 2 years ago
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