Finance - 901,663.80 $275,000 = (1 + MIRR) 1 0.30499 = (1 +...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
1. Alyeska Salmon Inc., a large salmon canning firm operating out of Valdez, Alaska, has a new automated production line project it is considering. The project has a cost of $275,000 and is expected to provide after-tax annual cash flows of $73,306 for eight years. The firm's management is uncomfortable with the IRR reinvestment assumption and prefers the modified IRR approach. You have calculated a cost of capital for the firm of 12 percent. What is the project's MIRR? a. 15.0% b. 14.0% c. 12.0% d. 16.0% e. 17.0% Modified IRR Tabular solution: TV = $73,306(FVIFA % , ) = $73,306(12.300) = $901,663.80
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: 901,663.80 $275,000 = (1 + MIRR) 1 0.30499 = (1 + MIRR) (1 + MIRR) = (FVIF IRR, ) = 3.27869. Look in table: Periods = 8, i = 16%. MIRR = 16%. Alternate method 3.27869 = 1 + MIRR MIRR = 16%. Financial calculator solution: TV Inputs: N = 8; I = 12; PMT = 73,306. Output: FV = -$901,641.31. MIRR Inputs: N = 8; PV = -275,000; FV = 901,641.31. Output: I = 16%. Alternate method: Inputs: CF = 0; CF = 73,306; N j = 8; I = 12. Output: NFV = $901,641.31. Inputs: CF = -275,000; CF = 0; N j = 7; CF = 901,641.31. Output: IRR = 16.0% = MIRR....
View Full Document

This note was uploaded on 06/10/2011 for the course FIN 301 taught by Professor Simonian during the Spring '11 term at Glendale Community College.

Ask a homework question - tutors are online