Question
In: Finance
Star Industries owns and operates landfills for several municipalities throughout the Midwestern part of the U.S....
Star Industries owns and operates landfills for several municipalities throughout the Midwestern part of the U.S. Star typically contracts with the municipality to provide landfill services for a period of 20 years. The firm then constructs a lined landfill (required by federal law) that has the capacity for five years. The $9.4 million expenditure required to construct the new landfill results in negative cash flows at the end of years 5, 10, and 15. This change in sign on the stream of cash flows over the 20-year contract period introduces the potential for multiple IRRs, so Star's management has decided to use the MIRR to evaluate new landfill investment contracts. The annual cash inflows to Star begin in year 1 and extend through year 20 are estimated to equal $3.1 million (this does not reflect the cost of constructing the landfills every five years). Star uses a 9.4 % discount rate to evaluate its new projects, so it plans to discount all the construction costs every five years back to year 0 using this rate before calculating the MIRR.
a. What are the project's NPV, IRR, and MIRR?
b. Is this a good investment opportunity for Star Industries? Why or why not?
Solutions
jeff jeffy answered 1 year agoRelated Solutions
(MIRR) Star Industries owns and operates landfills for several municipalities throughout the Midwestern part of the...
(MIRR) Star Industries owns and operates
landfills for several municipalities throughout the Midwestern part
of the U.S. Star typically contracts with the municipality to
provide land services for a period of 20 years. The firm then
constructs a lined landfill (required by federal law) that has
capacity for five years. The $9.8 million expenditure required to
construct the new landfill results in negative cash flows at the
end of years 5, 10, and 15. This change in sign on the...
(MIRR) Star Industries owns and operates landfills for several municipalities throughout the Midwestern part of the...
(MIRR) Star Industries owns and operates landfills for several
municipalities throughout the Midwestern part of the U.S. Star
typically contracts with the municipality to provide landfill
services for a period of 20 years. The firm then constructs a lined
landfill (required by federal law) that has capacity for five
years. The $9.6 million expenditure required to construct the new
landfill results in negative cash flows at the end of years 5, 10,
and 15. This change in sign on the...
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