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
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