Business

Question

Mass Company is investing in a giant crane. It is expected to cost $6 million in initial investment, and it is expected to generate an end-of-year cash flow of $3 million each year for three years. At the end of the fourth year, there will be a $1 million disposal cost. Calculate the MIRR for the project if the cost of capital is 12 percent.

1 Answer

  • Answer:

    17.8%

    Explanation:

    the formular for MIRR

    = [tex]\frac{FVcashinflow}{PVcashoutflow } ^{1/n} -1[/tex]

    we solve for the future value =

    3(1+0.12)³ + 3(1+0.12)² + 3(1+0.12) =

    4.2147 + 3.7632 + 3.36

    = 11.3379

    we also calculate present value

    = [tex]6-[\frac{1}{1+0.12}] ^{4}[/tex]

    = 6-0.6355

    = 5.3645 million

    MIRR = [tex][\frac{11.3379}{5.3645}] ^{1/4}[/tex]-1

    = 0.178

    = 17.8%

NEWS TODAY

You May Be Interested