Financial Management: Theory & Practice
16th Edition
ISBN: 9781337909730
Author: Brigham
Publisher: Cengage
expand_more
expand_more
format_list_bulleted
Question
Chapter 10, Problem 19P
a)
Summary Introduction
To determine: The
b)
Summary Introduction
To determine: Whether the project be accepted if r=8% and if r=14%.
c)
Summary Introduction
To determine: The capital budgeting situations in which negative cash flows during or at the end of the projects life might lead to multiple
d)
Summary Introduction
To determine: The MIRR of projects when r=8% and r=14% and whether the decision based on MIRR and NPV will be the same.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
The Ulmer Uranium Company is deciding whether or not to open a strip mine whose net cost is $4.4 million. Net cash inflows are expected to be $27.7 million, all coming at the end of Year 1. The land must be returned to its natural state at a cost of $25 million, payable at the end of Year 2.
a. Select the correct graph for the project's NPV profile.
%
NPV(Millions of Dollars)
frete
%
-1
ㅋ
A
Discount Rate (%)
100
200
300
400
The correct graph is [-Select- V
b. Should the project be accepted if r = 6%? Explain your reasoning.
The project -Select- ✓ be accepted because NPV is-Select- ✓
Should the project be accepted if r = 11%? Explain your reasoning.
The project -Select-
be accepted because NPV is -Select-
c. What is the project's MIRR at r = 6%? Do not round intermediate calculations. Round your answer to two decimal places.
What is the project's MIRR at r = 11%? Do not round intermediate calculations. Round your answer to two decimal places.
100
200
-1 Discount Rate (%)
-2
-3
B
NPV at…
A mining company is deciding whether to open a strip mine, which costs $2.5 million. Cash inflows of $13 million would occur at the end of Year 1. The land must be returned to its natural state at a cost of $11.5 million, payable at the end of Year 2.
Plot the project's NPV profile.
The correct sketch is -Select-ABCDItem 1 .Should the project be accepted if WACC = 10%?-Select-YesNoItem 2
Should the project be accepted if WACC = 20%?-Select-YesNoItem 3Think of some other capital budgeting situations in which negative cash flows during or at the end of the project's life might lead to multiple IRRs. The input in the box below will not be graded, but may be reviewed and considered by your instructor.
What is the project's MIRR at WACC = 10%? Round your answer to two decimal places. Do not round your intermediate calculations.%
What is the project's MIRR at WACC = 20%? Round your answer to two decimal places. Do not round your intermediate calculations.%
Does MIRR lead to the same…
A mining company is deciding whether to open a strip mine with an initial outlay at t = 0 of $1.5 million. Cash inflows of $13.5 million would occur at the end of Year 1. The land
must be returned to its natural state so there is a cash outflow of $11.5 million, payable at the end of Year 2.
a. Select the project's NPV profile.
NPV
(Millions
of Dollars)
(Millions
of Dollars
(Milions
of Dollars)
།།།
2.5
1.5
100
WACC (%)
300
400
500
WACC (%)
WACC (%)
NPV
(Millions
of Dollars)
D
2.5
1.5
0.5
0.5
100
200 300 400
500
WACC (%)
The correct sketch is -Select-
b. Should the project be accepted if WACC = 10%?
-Select-
Should the project be accepted if WACC = 20%?
-Select-
c. What is the project's MIRR at WACC = 10%? Do not round intermediate calculations. Round your answer to two decimal places.
%
What is the project's MIRR at WACC = 20%? Do not round intermediate calculations. Round your answer to two decimal places.
%
Does MIRR lead to the same accept/reject decision for this project as the NPV…
Chapter 10 Solutions
Financial Management: Theory & Practice
Ch. 10 - Define each of the following terms:
Capital...Ch. 10 - What types of projects require the least detailed...Ch. 10 - Explain why the NPV of a relatively long-term...Ch. 10 - When two mutually exclusive projects are being...Ch. 10 - Suppose a firm is considering two mutually...Ch. 10 - A project has an initial cost of 40,000, expected...Ch. 10 - Refer to Problem 10-1. What is the project’s IRR?
Ch. 10 - Refer to Problem 10-1. What is the projects MIRR?Ch. 10 - Prob. 4PCh. 10 - Prob. 5P
Ch. 10 - Prob. 6PCh. 10 - Your division is considering two investment...Ch. 10 - Edelman Engineering is considering including two...Ch. 10 - Davis Industries must choose between a gas-powered...Ch. 10 - Project S has a cost of 10,000 and is expected to...Ch. 10 - Your company is considering two mutually exclusive...Ch. 10 - Prob. 12PCh. 10 - Cummings Products is considering two mutually...Ch. 10 - Prob. 14PCh. 10 - Prob. 15PCh. 10 - Shao Airlines is considering the purchase of two...Ch. 10 - The Perez Company has the opportunity to invest in...Ch. 10 - Filkins Fabric Company is considering the...Ch. 10 - Prob. 19PCh. 10 - The Aubey Coffee Company is evaluating the...Ch. 10 - Your division is considering two investment...Ch. 10 - Prob. 22PCh. 10 - Start with the partial model in the file Ch10 P23...Ch. 10 - What is capital budgeting?Ch. 10 - Prob. 2MCCh. 10 - c. (1) Define the term net present value (NPV)....Ch. 10 - Prob. 4MCCh. 10 - Draw NPV profiles for Franchises L and S. At what...Ch. 10 - What is the underlying cause of ranking conflicts...Ch. 10 - Define the term modified IRR (MIRR). Find the...Ch. 10 - What does the profitability index (PI) measure?...Ch. 10 - (1) What is the payback period? Find the paybacks...Ch. 10 - Prob. 10MCCh. 10 - In an unrelated analysis, you have the opportunity...Ch. 10 - You are also considering another project that has...
Knowledge Booster
Similar questions
- The Ulmer Uranium Company is deciding whether or not to open a strip mine whose net cost is $4.4 million. Net cash inflows are expected to be $27.7 million, all coming at the end of Year 1. The land must be returned to its natural state at a cost of $25 million, payable at the end of Year 2. Plot the project’s NPV profile. Should the project be accepted if r = 8%? If r = 14%? Explain your reasoning. Can you think of some other capital budgeting situations in which negative cash flows during or at the end of the project’s life might lead to multiple IRRs? What is the project’s MIRR at r = 8%? At r = 14%? Does the MIRR method lead to the same accept-reject decision as the NPV method?arrow_forwardJasmine Manufacturing is considering a project that will require an initial investment of $52,000 and is expected to generate future cash flows of $10,000 for years 1 through 3, $8,000 for years 4 and 5, and $2,000 for years 6 through 10. What is the payback period for this project?arrow_forwardRedbird Company is considering a project with an initial investment of $265,000 in new equipment that will yield annual net cash flows of $45,800 each year over its seven-year life. The companys minimum required rate of return is 8%. What is the internal rate of return? Should Redbird accept the project based on IRR?arrow_forward
- The company XYZ is deciding whether or not to on a new project with an initial cost of 5.5 MM$. Net cash inflows are expected to be 9 MM$ for each of the first five years of operations. In the sixth year, the abandonment cost of the project is 35 MM$. a. Develop and plot the NPV profile for the projectb. Should the project be accepted at a rate of return of 8%? Should it be accepted at a rate of return of 15%? c. What is the project GRR if the available reinvestment rate is 8%? What if the rate is 15%?arrow_forwardLara Technologies is considering a cash outlay of $230,000 for the purchase of land, which it could lease out for $37,600 per year. If alternative investments that yield a 15% return are available, the opportunity cost of the purchase of the land is a.$34,500 b.$72,100 c.$37,600 d.$3,100arrow_forwardWhich is the correct option? San Diego Enterprises is planning to invest in a five-year project costing $270,000. The project is expected to generate annual cash revenues of $90,000 and annual cash expenses (including depreciation) of $30,000. The estimated residual value is $20,000. The project’s payback period is: a. 3.25 years b. 5 years c. 3 years d. 4.5 yearsarrow_forward
- Fijisawa, Inc. is considering a major expansion of its product line and has estimated the following cash flows associated with such an expansion. the initial outlay would be $11,700,000, and the project would generate cash flows of $1,200,000 per year for 20 years. the appropriate discount rate is 6.7%. A. Calculate the NPV b. Calculate the PI C. Calculate the IRR D. should this project be accepted? why or why not?arrow_forwardManjiarrow_forwardA project will produce an operating cash flow of $14,600 a year for 7 years. The initial fixed asset investment in the project will be $48,900. The net aftertax salvage value is estimated at $12,000 and will be received during the last year of the project's life. What is the net present value of the project if the required rate of return is 12 percent? Group of answer choices $22,627.54 $23,159.04 $34,627.54 $39,070.26 $41,040.83 please please solve it with a finance calculator and show your work, I know the answer but looking for some easy way to slove it by a finance calculatorarrow_forward
- A new project requires an initial investment of $12,000 today and is expected to generate cash flows of $2,350 per year for the next 10 years. The firm has a cost of capital or required rate of return of 8 percent. Should this project be accepted, and why? Use the IRR criterion. Notice all CFs from t-1 to t-10 are equal. IRR-7.50% 8.00% Reject IRR-8.45% IRR-14.55% 8.00% Accept IRR-10.25% 8.00% Accept 0% Acceptarrow_forwardAnswerarrow_forwardThe Ball Shoe Company is considering an investment project that requires an initial investment of $532,000 and returns cash inflows of $79,275 per year for 10 years. The firm has a maximum acceptable payback period of 8 years. a. Determine the payback period for this project. b. Should the company accept the project?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College Pub
Financial And Managerial AccountingAccountingISBN:9781337902663Author:WARREN, Carl S.Publisher:Cengage Learning,
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Managerial Accounting
Accounting
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:South-Western College Pub
Financial And Managerial Accounting
Accounting
ISBN:9781337902663
Author:WARREN, Carl S.
Publisher:Cengage Learning,