(Calculating MIRR) OTR Trucking Company runs a fleet of long-haul trucks and has recently expanded into the Midwest, where it has decided to build a maintenance facility. This project will require an initial cash outlay of $18.5 million and will generate annual cash inflows of $4.2 million per year for Years 1 through 3. In Year 4, the project will provide a net negative cash flow of $5.5 million due to anticipated expansion of and repairs to the facility. During Years 5 through 10, the project will provide cash inflows of $1.4 million per year. a. Calculate the project's NPV and IRR where the discount rate is 11 percent. Is the project a worthwhile investment based on these two measures? Why or why not? b. Calculate the project's MIRR. Is the project a worthwhile investment based on this measure? Why or why not?

(Calculating MIRR) OTR Trucking Company runs a fleet of long-haul trucks and has recently expanded into the Midwest, where it has decided to build a maintenance facility. This project will require an initial cash outlay of $18.5 million and will generate annual cash inflows of $4.2 million per year for Years 1 through 3. In Year 4, the project will provide a net negative cash flow of $5.5 million due to anticipated expansion of and repairs to the facility. During Years 5 through 10, the project will provide cash inflows of $1.4 million per year. a. Calculate the project's NPV and IRR where the discount rate is 11 percent. Is the project a worthwhile investment based on these two measures? Why or why not? b. Calculate the project's MIRR. Is the project a worthwhile investment based on this measure? Why or why not?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 12P

See similar textbooks

Similar questions

The management of Ryland International Is considering Investing in a new facility and the following cash flows are expected to result from the investment: A. What Is the payback period of this uneven cash flow? B. Does your answer change if year 6s cash inflow changes to $920,000?
The management of Kawneer North America is considering investing in a new facility and the following cash flows are expected to result from the investment: A. What is the payback period of this uneven cash flow? B. Does your answer change if year 10s cash inflow changes to $500,000?
Roberts Company is considering an investment in equipment that is capable of producing more efficiently than the current technology. The outlay required is 2,293,200. The equipment is expected to last five years and will have no salvage value. The expected cash flows associated with the project are as follows: Required: 1. Compute the projects payback period. 2. Compute the projects accounting rate of return. 3. Compute the projects net present value, assuming a required rate of return of 10 percent. 4. Compute the projects internal rate of return.
Ivanhoe Industries management is planning to replace some existing machinery in its plant. The cost of the new equipment and the resulting cash flows are shown in the accompanying table. The firm uses an 18 percent discount rate for projects like this. Should management go ahead with the project? Year Cash Flow 0 -$3,046,900 1 803,710 2 889,200 3 1,247,600 4 1,285,160 5 1,576,500 What is the NPV of this project? - NPV $?
(Calculating IRR, payback, and a missing cash flow) The Merriweather Printing Company is trying to decide on the merits of constructing a new publishing facility. The project is expected to provide a series of positive cash flows for each of the next four years. The estimated cash flows associated with this project are as follows: Year Project Cash Flow 0 ? 1 $800,000 2 400,000 3 300,000 4 500,000 If you know that the project has a regular payback of 2.5 years, what is the project's IRR? The IRR of the project is ( ? ) %. (Round to two decimal places.)
Wildhorse Industries management is planning to replace some existing machinery in its plant. The cost of the new equipment and the resulting cash flows are shown in the accompanying table. The firm uses an 18 percent discount rate for projects like this. Should management go ahead with the project? Year 0 1 2 3 4 5 Cash Flow -$3,485,400 871,710 896,700 1,104,400 1,340,360 1,450,600 What is the NPV of this project? (Enter negative amounts using negative sign e.g. -45.25. Do not round discount factors. Round other intermediate calculations and final answer to O decimal places, e.g. 1,525.) The NPV is $
Blossom Industries management is planning to replace some existing machinery in its plant. The cost of the new equipment and the resulting cash flows are shown in the accompanying table. The firm uses an 18 percent discount rate for projects like this. Should management go ahead with the project? Year Cash Flow 0 -$2,970,000 1 787,610 2 869,600 3 1,030,500 4 1,125,360 5 1,354,000 What is the NPV of this project? (Enter negative amounts using negative sign e.g. -45.25. Do not round discount factors. Round other intermediate calculations and final answer to 0 decimal places, e.g. 1,525.) The NPV is $enter The NPV in dollars rounded to 0 decimal places Should management go ahead with the project? The firm should select an option rejectaccept the project.
(Calculating IRR, payback, and a missing cash flow) The Merriweather Printing Company is trying to decide on the merits of constructing a new publishing facility. The project is expected to provide a series of positive cash flows for each of the next four years. The estimated cash flows associated with this project are as follows: Year Project Cash Flow $760,000 390,000 290,000 450,000 (Click on the icon O in order to copy its contents into a spreadsheet.) 2 3 4 If you know that the project has a regular payback of 2.1 years, what is the project's IRR? The IRR of the project is %. (Round to two decimal places.)
The Sisyphean Company is planning on investing in a new project. This will involve the purchase of some new machinery costing $400,000. The Sisyphean Company expects cash inflows from this project as detailed below: Year 1 $169,377 19% 15% The appropriate discount rate for this project is 17%. The internal rate of return (IRR) for this project is closest to: 25% Year 2 $169,377 Ⓒ29% Year 3 $169,377 Year 4 $169,377
(Calculating IRR, payback, and a missing cash flow) The Merriweather Printing Company is trying to decide on the merits of constructing a new publishing facil- ity. The project is expected to provide a series of positive cash flows for each of the next four years. The estimated cash flows associated with this project are as follows: Year Project Cash Flow ? 1 $800,000 2 400,000 3 300,000 4 500,000 If you know that the project has a regular payback period of 2.5 years, what is the project's IRR?
The Sisyphean Company is planning on investing in a new project. This will involve the purchase of some new machinery costing $ 300,000. The Sisyphean Company expects cash inflows from this project as detailed below: Year 1: $ 131,579 Year 2: $ 131,579 Year 3: $ 131,579 Year 4: $ 131,579 The appropriate discount rate for this project is 18%. The internal rate of return ( IRR) for this project is closest to: Question content area bottom Part 1 A.27% B.16% C.20% D.31%
Grady-White Boats, Inc. is considering a project that will require additional inventory of $1,131,000. In addition, pursuing this project will also increase accounts payable by $400,000 as suppliers are willing to finance part of these purchases. Accounts receivable are currently $800,000 and are expected to increase by 10% if this project is accepted. The firm's cash requirements are not anticipated to change. What is the incremental change to net working capital as a result of accepting this project? O A. $1,531,000 O B. $1,451,000 C. $811,000 D. $651,000 O E. $1,611,000