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A project requires an initial cash investment at its inception of $10,000, and no other cash outflows are necessary. Cash inflows from the project over its 3-year life are $6,000 at the end of the first year, $5,000 at the end of the second year, and $2,000 at the end of the third year. The future value interest factors for an amount of $1 at the firm's desired rate of return of 8% are
The present value interest factors for an amount of $1 for three periods are as follows:
The modified IRR (MIRR)for the project is closest to
Suggested Answer: D
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Once an old piece of equipment has been disposed of, its histoncal cost no longer has an impact on a firms cash flows.
40 comments · newest first
ST
Stevie
10 months ago
I agree, 10% seems right based on those numbers!
NO
Noe
11 months ago
Wait, how can the MIRR be 12% with those cash flows?
JA
Janessa
11 months ago
Definitely feels like it should be higher than 8%.
MA
Marg
11 months ago
I think the MIRR is closer to 10%.
JA
Janet
11 months ago
Initial investment is $10,000, cash inflows are $6,000, $5,000, and $2,000.
KR
Kristel
12 months ago
I feel like the answer might be around 10% based on the cash inflows, but I can't recall the exact calculation steps.
RO
Rory
12 months ago
I’m a bit confused about how to apply the future value factors here. Did we use those in the practice problems?
LI
Lindsey
12 months ago
I think the MIRR should be higher than the IRR since we have a negative cash flow at the start.
NI
Nickolas
1 year ago
I remember we did a similar question on MIRR in class, but I’m not sure if I calculated it right.
RE
Reena
1 year ago
I think I've got a good handle on this. I'll start by calculating the present value of each cash inflow, then add them up and compare to the initial investment. The MIRR should fall out from there.
ME
Mendy
1 year ago
Wait, what are the future value interest factors for? I thought we were supposed to be calculating present value. This question is tripping me up a bit.
ME
Merilyn
1 year ago
No problem, I've got this! The key is to discount the cash inflows to their present value using the given factors, then compare that to the initial investment. Should be straightforward.
EL
Elke
1 year ago
Hmm, I'm a bit confused by all the interest factors and formulas. I'll have to review my notes on MIRR to make sure I'm approaching this correctly.
NE
Nelida
1 year ago
Okay, this looks like a classic time value of money problem. I'll need to calculate the present value of the cash inflows and compare it to the initial investment to determine the MIRR.
MA
Mariann
1 year ago
I'm feeling confident about this one. It's like a math puzzle, and I love solving those!
SH
Sheridan
1 year ago
D) 12%
JU
Junita
1 year ago
C) 10%
QU
Quinn
1 year ago
B) 9%
JE
Jenifer
1 year ago
A) 8%
NI
Nicolette
1 year ago
Wait, what's the MIRR again? I should probably brush up on my financial formulas before the exam.
KE
Keva
1 year ago
D) 12%
VI
Victor
1 year ago
C) 10%
ME
Melodie
1 year ago
B) 9%
IR
Irving
1 year ago
A) 8%
TH
Therese
1 year ago
This question is perfect for the exam. It's challenging, but the information provided is clear and concise.
TA
Tasia
1 year ago
C) 10%
TR
Tracie
1 year ago
B) 9%
RE
Reuben
1 year ago
A) 8%
TA
Tawny
1 year ago
Hmm, the MIRR calculation seems tricky. I'd better double-check my work to make sure I get the right answer.
FE
Felicitas
1 year ago
I believe it's option C) 10%. What do you think?
EL
Elfriede
1 year ago
So, based on the cash flows and the required rate of return, we can calculate the MIRR to determine if the project is worth pursuing.
LA
Larae
1 year ago
So, which answer option do you think is closest to the MIRR for this project?
JA
Janae
1 year ago
Yes, that's correct. The MIRR takes into account the cost of capital and reinvestment rate. It provides a more accurate picture of the project's profitability.
CE
Cecil
1 year ago
That's correct. It's a more accurate measure of profitability compared to IRR.
AL
Alesia
1 year ago
I think the MIRR formula takes into account both the cost of the project and the reinvestment rate.
FR
Francis
1 year ago
I think the MIRR calculation involves adjusting for the cost of financing. It's not just a simple IRR calculation.
AL
Alesia
1 year ago
Okay, let's see... The given information includes the initial cash investment, cash inflows over the project's 3-year life, and the future value interest factors. I think I can work this out.
VA
Valentin
2 years ago
That's a good point, the timing of cash inflows does affect the MIRR calculation.
MA
Marnie
2 years ago
I disagree, I believe it's closer to 9% because of the cash inflows in the later years.
VA
Valentin
2 years ago
I think the MIRR for the project is closest to 10%.