lue Llama Mining Company is analyzing a project that requires an initial investment of $3,225,000. The project’s expected cash flows are: Year Cash Flow Year 1 $325,000 Year 2 –100,000 Year 3 425,000 Year 4 500,000 1. Blue Llama Mining Company’s WACC is 7%, and the project has the same risk as the firm’s average project. Calculate this project’s modified internal rate of return (MIRR): 17.53%
lue Llama Mining Company is analyzing a project that requires an initial investment of $3,225,000. The project’s expected cash flows are: Year Cash Flow Year 1 $325,000 Year 2 –100,000 Year 3 425,000 Year 4 500,000 1. Blue Llama Mining Company’s WACC is 7%, and the project has the same risk as the firm’s average project. Calculate this project’s modified internal rate of return (MIRR): 17.53%
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Blue Llama Mining Company is analyzing a project that requires an initial investment of $3,225,000. The project’s expected cash flows are:
|
Year
|
Cash Flow
|
|---|---|
| Year 1 | $325,000 |
| Year 2 | –100,000 |
| Year 3 | 425,000 |
| Year 4 | 500,000 |
1. Blue Llama Mining Company’s WACC is 7%, and the project has the same risk as the firm’s average project. Calculate this project’s modified internal rate of return (MIRR):
17.53%
-20.06%
22.14%
16.61%
2. If Blue Llama Mining Company’s managers select projects based on the MIRR criterion, they should accept or reject this independent project.
3. Which of the following statements about the relationship between the IRR and the MIRR is correct?
A typical firm’s IRR will be equal to its MIRR.
A typical firm’s IRR will be less than its MIRR.
A typical firm’s IRR will be greater than its MIRR.
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