Stan Co. is considering a five-year investment that costs P100,000. The investment will produce cash flows of P25,000 each year for the first two years (t = 1 and t = 2), P50,000 a year for each of the remaining three years (t = 3, t = 4, and t = 5). The company has a weighted average cost of capital of 12 percent. What is the MIRR of the investment? Use 5 decimal places for the PV factor.

Stan Co. is considering a five-year investment that costs P100,000. The investment will produce cash flows of P25,000 each year for the first two years (t = 1 and t = 2), P50,000 a year for each of the remaining three years (t = 3, t = 4, and t = 5). The company has a weighted average cost of capital of 12 percent. What is the MIRR of the investment? Use 5 decimal places for the PV factor.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 13E: Buena Vision Clinic is considering an investment that requires an outlay of 600,000 and promises a...

See similar textbooks

Similar questions

Assume a company is going to make an investment of $450,000 in a machine and the following are the cash flows that two different products would bring in years one through four. Which of the two options would you choose based on the payback method?
Mason, Inc., is considering the purchase of a patent that has a cost of $85000 and an estimated revenue producing lite of 4 years. Mason has a required rate of return that is 12% and a cost of capital of 11%. The patent is expected to generate the following amounts of annual income and cash flows: A. What is the NPV of the investment? B. What happens if the required rate of return increases?
Towson Industries is considering an investment of $256,950 that is expected to generate returns of $90,000 per year for each of the next four years. What Is the Investments internal rate of return?
Buena Vision Clinic is considering an investment that requires an outlay of 600,000 and promises a net cash inflow one year from now of 810,000. Assume the cost of capital is 10 percent. Required: 1. Break the 810,000 future cash inflow into three components: a. The return of the original investment b. The cost of capital c. The profit earned on the investment 2. Now, compute the present value of the profit earned on the investment. 3. Compute the NPV of the investment. Compare this with the present value of the profit computed in Requirement 2. What does this tell you about the meaning of NPV?
Your division is considering two investment projects, each of which requires an up-front expenditure of 25 million. You estimate that the cost of capital is 10% and that the investments will produce the following after-tax cash flows (in millions of dollars): a. What is the regular payback period for each of the projects? b. What is the discounted payback period for each of the projects? c. If the two projects are independent and the cost of capital is 10%, which project or projects should the firm undertake? d. If the two projects are mutually exclusive and the cost of capital is 5%, which project should the firm undertake? e. If the two projects are mutually exclusive and the cost of capital is 15%, which project should the firm undertake? f. What is the crossover rate? g. If the cost of capital is 10%, what is the modified IRR (MIRR) of each project?
Redbird Company is considering a project with an initial investment of $265,000 in new equipment that will yield annual net cash flows of $45,800 each year over its seven-year life. The companys minimum required rate of return is 8%. What is the internal rate of return? Should Redbird accept the project based on IRR?
Assume a company is going to make an investment in a machine of $825,000 and the following are the cash flows that two different products would bring. Which of the two options would you choose based on the payback method?
Assume that an investment of 100,000 produces a net cash flow of 60,000 per year for two years. The discount factor for year 1 is 0.89 and for year 2 is 0.80. The NPV is a. 0 b. 6,800 c. 1,400 d. (4,000)
NUBD Co. is considering a five-year investment that costs P100,000. The investment will produce cash flows of P25,000 each year for the first two years (t = 1 and t = 2), P50,000 a year for each of the remaining three years (t = 3, t = 4, and t = 5). The company has a weighted average cost of capital of 12 percent. What is the MIRR of the investment? Use 5 decimal places for the PV %3D factor. *
NUBD Co. is considering a five-year investment that costs P100,000. The investment will produce cash flows of P25,000 each year for the first two years (t = 1 and t = 2), P50,000 a year for each of the remaining three years (t = 3, t = 4, and t = 5). The company has a weighted average cost of capital of 12 percent. What is the MIRR of the investment? Use 5 decimal places for the PV factor. Round-off the final answer to 2 decimal places. Sample format: 11.11%
NUBD Co. is planning to invest P40,000 in a three-year project. NUBD’s expected rate of return is 10%. The cash flow, net of income taxes, will be P15,000 for the first year and P18,000 for the second year. Use 3 decimal places for the PV factors. Assuming the rate is exactly 10%, what would be the cash flow, net of income taxes, be for the third year?
An investment costs $23,958 and will generate cash flow of $6,000 annually for five years. The firm’s cost of capital is 10 percent. a.) What is the investment’s internal rate of return? Based on the internalrate of return, should the firm make the investment? b.) What is the investment’s net present value? Based on the net presentvalue, should the firm make the investment?