Question
In: Finance
(Related to Checkpoint 11.6) (Calculating MIRR) The Dunder Muffin Company is considering purchasing a new commercial...
(Related to Checkpoint 11.6) (Calculating MIRR) The Dunder Muffin Company is considering purchasing a new commercial oven that costs $320 comma 000. This new oven will produce cash inflows of $165 comma 000 at the end of Years 1 through 10. In addition to the cash inflows, at the end of Year 5 there will be a net cash outflow of $245 comma 000. The company has a weighted average cost of capital of 11.8 percent. What is the MIRR of the investment? Would you make the investment? Why or why not? Note that we discounted the project's negative cash flows back to the present using the project's required rate of return and then computed the MIRR from the modified cash flows.
The MIRR of the investment with a discount rate of 11.8% is Round to two decimal places.)
Would you make the investment? Why or why not? (Select the best choice below.)
A.
Yes, the project is worthwhile based on this measure because the MIRR is greater than the discount rate.
B.
Yes, the project is worthwhile based on this measure because the MIRR is less than the discount rate.
C.
No, the project is not worthwhile based on this measure because the MIRR is greater than the discount rate.
D.
No, the project is not worthwhile based on this measure because the MIRR is less than the discount rate.
Solutions
Expert Solution
MIRR = 21.57%
A. Yes, the project is worthwhile based on this measure because the MIRR is greater than the discount rate.
The net cash flows are
| Year | Initialcost | Cash flow | Cash outflow | Net Cash flows |
| 0 | -320000 | -320000 | ||
| 1 | 165000 | 165000 | ||
| 2 | 165000 | 165000 | ||
| 3 | 165000 | 165000 | ||
| 4 | 165000 | 165000 | ||
| 5 | 165000 | -245000 | -80000 | |
| 6 | 165000 | 165000 | ||
| 7 | 165000 | 165000 | ||
| 8 | 165000 | 165000 | ||
| 9 | 165000 | 165000 | ||
| 10 | 165000 | 165000 |
MIRR is computed using MIRR function in excel as below
jeff jeffy answered 1 year agoRelated Solutions
(Related to Checkpoint 11.6) (MIRR calculation) Emily's Soccer Mania is considering building a new plant. This...
(Related to Checkpoint 11.6) (MIRR calculation) Emily's
Soccer Mania is considering building a new plant. This project
would require an initial cash outlay of $10 million and would
generate annual cash inflows of $3 million per year for years one
through four. In year five the project will require an investment
outlay of $5 million. During years 6 through 10 the project will
provide cash inflows of $5 million per year. Calculate the
project's MIRR, given a discount rate of...
(Related to Checkpoint 11.1 and Checkpoint 11.4) (Calculating NPV, PI, and IRR) Fijisawa, Inc. is considering...
(Related to Checkpoint 11.1 and Checkpoint 11.4) (Calculating
NPV, PI, and IRR) Fijisawa, Inc. is considering a major
expansion of its product line and has estimated the following cash
flows associated with such an expansion. The initial outlay would
be $11 comma 300 comma 000, and the project would generate cash
flows of $1 comma 150 comma 000 per year for 20 years. The
appropriate discount rate is 6.8 percent.
a. Calculate the NPV.
b. Calculate the PI.
c. Calculate...
Dunder Mifflin Paper Company is considering purchasing a new stamping machine that costs $450,000. This new...
Dunder Mifflin Paper Company is considering purchasing a new
stamping machine that costs $450,000. This new machine will
produce cash inflows of $150,000 each year at the end of years 1
through 5, then at the end of year 7 there will be a cash
outflow of $200,000 The company has a weighted average
cost of capital of 14 percent (use this as the reinvestment
rate). What is the MIRR of the investment?
(Related to Checkpoint 12.1) (Calculating project cash flows and NPV) You are considering expanding your product...
(Related to Checkpoint
12.1) (Calculating project cash flows and
NPV) You are considering expanding your product line that
currently consists of skateboards to include gas-powered
skateboards, and you feel you can sell
12 comma 00012,000
of these per year for
1010
years (after which time this project is expected to shut down
with solar-powered skateboards taking over). The gas skateboards
would sell for
$130130
each with variable costs of
$4545
for each one produced, and annual fixed costs associated with...
Related to Checkpoint 12.1) (Calculating project cash flows and NPV) You are considering expanding your product...
Related to Checkpoint 12.1) (Calculating project cash flows
and NPV) You are considering expanding your product line that
currently consists of skateboards to include gas-powered
skateboards, and you feel you can sell 8 comma 000 of these per
year for 10 years (after which time this project is expected to
shut down with solar-powered skateboards taking over). The gas
skateboards would sell for $120 each with variable costs of $25
for each one produced, and annual fixed costs associated with...
(Related to Checkpoint 12.1) (Calculating project cash flows and NPV) You are considering expanding your product...
(Related to Checkpoint 12.1) (Calculating project cash flows
and NPV) You are considering expanding your product line that
currently consists of skateboards to include gas-powered
skateboards, and you feel you can sell 9 000 of these per year for
10 years (after which time this project is expected to shut down
with solar-powered skateboards taking over). The gas skateboards
would sell for $80 each with variable costs of $35 for each one
produced an annual fixed cost associated with production...
(Related to Checkpoint 12.1) (Calculating project cash flows and NPV) You are considering expanding your product...
(Related to Checkpoint 12.1) (Calculating project cash flows
and NPV) You are considering expanding your product line that
currently consists of skateboards to include gas-powered
skateboards, and you feel you can sell 9 comma 000 of these per
year for 10 years (after which time this project is expected to
shut down with solar-powered skateboards taking over). The gas
skateboards would sell for $130 each with variable costs of $30
for each one produced, and annual fixed costs associated with...
(Related to Checkpoint 12.1)(Calculating project cash flows and NPV)You are considering expanding your product line that...
(Related to Checkpoint 12.1)(Calculating project cash flows
and NPV)You are considering expanding your product line that
currently consists of skateboards to include gas-powered
skateboards, and you feel you can sell 11,000 of these per year for
10 years (after which time this project is expected to shut down
with solar-powered skateboards taking over). The gas skateboards
would sell for $110 each with variable costs of $35 for each one
produced, and annual fixed costs associated with production would
be $180,000....
(Related to Checkpoint 18.2) (Calculating the cost of short-term financing) The R. Morin Construction Company needs...
(Related to Checkpoint 18.2) (Calculating the cost of
short-term financing) The R. Morin Construction Company needs to
borrow $90,000 to help finance the cost of a new $135,000
hydraulic crane used in the firm's commercial construction
business. The crane will pay for itself in one year, and the firm
is considering the following alternatives for financing its
purchase: Alternative A. The firm's bank has
agreed to lend the $90,000 at a rate of 12 percent. Interest would
be discounted, and...
(Related to Checkpoint 13.2 and Checkpoint 13.3) (Comprehensive risk analysis) Blinkeria is considering introducing a...
(Related to Checkpoint 13.2 and Checkpoint 13.3)
(Comprehensive risk analysis) Blinkeria is considering introducing
a new line of hand scanners that can be used to copy material and
then download it into a personal computer. These scanners are
expected to sell for an average price of $95 each, and the company
analysts performing the analysis expect that the firm can sell
104,000 units per year at this price for a period of five years,
after which time they expect...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- Economist Steven Landsburg argues that if one believes in the death penalty for murderers because of...
- Need this in C# and also the Pseudocode. Program 4: In 1789, Benjamin Franklin is known...
- WRITE one paragraph summary of the PEER TO PEER NETWORK using the following format. the paragraph...
- Think of a situation that you may have experienced, witnessed, or heard about where the unethical...
- How does informed consent differ between health care and mental health? It is imperative that the...
- INTC current stock price is 23. You sold a 22 put and bought a 21 put....
- 5. A car weighs 2200 lbs. Its mass is a. 2.2 kg b. 2200 kg c....
ADVERTISEMENT