Question

Multiple Rates of Return

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.

What is the project's MIRR at r = 8%? Do not round intermediate calculations. Round your answer to two decimal places.
%

What is the project's MIRR at r = 14%? Do not round intermediate calculations. Round your answer to two decimal places.
%

Calculate the two NPVs. Do not round intermediate calculations. Round your answers to the nearest cent.

1    $  

2    $  

Answer 1

Solution::-

(A) R=8%

Assuming that R given is reinvestment rate & the cost of capital is equal to the IRR of projectt we will calculate IRR.

On calculating IRR we get equal to 8%, you can use MS- Excel for calculating IRR or also can use Interpolation technique for manual calculation.

Now assuming the above we will get the same MIRR as our both rates are same i.e. 9%

MIRR at 14%

When we calculate the same at 14% then MIRR will come at 13%.

In question only one project is given so we will claculate the NPV of the same only-

Year Cashflow Discount Factor Present Value

0 -4.40 1 -4.40

1 27.70 0.917 25.40

2 -25.00 0.842 -21.05

NPV -0.05