Suppose a firm is considering two mutually exclusive equally risky projects with WACC = 10% and the following cash flows: 0 1 2 3 4 Project X -$1,000 $500 $450 $350 $200 Project Y -$1,000 $750 $400 $300 $150 How can you calculate the MIRR for the project that maximizes shareholder value? Assuming that your professional financial calculator is able to calculate the MIRR, use the following table to indicate which values you should enter to compute the MIRR for Project X. CF0 CF1 CF2 CF3 CF4 Input Keystroke Arrow down Arrow down Arrow down Arrow down Arrow down IRR I MIRR Output Suppose that your calculator does not have the ability to compute the MIRR. Here are the steps you need to take to calculate the MIRR for Project Y. 1. Use the following table to indicate which values you should enter to compute the net present value (NPV) of all cash inflows. CF0 CF1 CF2 CF3 CF4 Input Keystroke Output Arrow down Arrow down Arrow down Arrow down Arrow down I/Y NPV 2. Use the following table to indicate which values you should enter to compute the future value of the NPV. Input Keystroke Output N I/Y PV PMT FV 3. Use the following table to indicate which values you should enter to compute the MIRR. Input Keystroke Output N PV PMT FV I/Y Finally, you can answer the question: The MIRR for the project maximizes shareholder value.
Suppose a firm is considering two mutually exclusive equally risky projects with WACC = 10% and the following cash flows: 0 1 2 3 4 Project X -$1,000 $500 $450 $350 $200 Project Y -$1,000 $750 $400 $300 $150 How can you calculate the MIRR for the project that maximizes shareholder value? Assuming that your professional financial calculator is able to calculate the MIRR, use the following table to indicate which values you should enter to compute the MIRR for Project X. CF0 CF1 CF2 CF3 CF4 Input Keystroke Arrow down Arrow down Arrow down Arrow down Arrow down IRR I MIRR Output Suppose that your calculator does not have the ability to compute the MIRR. Here are the steps you need to take to calculate the MIRR for Project Y. 1. Use the following table to indicate which values you should enter to compute the net present value (NPV) of all cash inflows. CF0 CF1 CF2 CF3 CF4 Input Keystroke Output Arrow down Arrow down Arrow down Arrow down Arrow down I/Y NPV 2. Use the following table to indicate which values you should enter to compute the future value of the NPV. Input Keystroke Output N I/Y PV PMT FV 3. Use the following table to indicate which values you should enter to compute the MIRR. Input Keystroke Output N PV PMT FV I/Y Finally, you can answer the question: The MIRR for the project maximizes shareholder value.
Financial Management: Theory & Practice
16th Edition
ISBN:9781337909730
Author:Brigham
Publisher:Brigham
Chapter10: The Basics Of Capital Budgeting: Evaluating Cash Flows
Section: Chapter Questions
Problem 23SP: Start with the partial model in the file Ch10 P23 Build a Model.xlsx on the textbooks Web site....
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