Question

Carraway Trucking Company runs a fleet of long-haul trucks and has recently expanded into Far North Queensland, where it has decided to build a maintenance facility. This project would require an initial cash outlay of $20 million and would generate annual cash inflows of $4 million per year for years 1 to 3. In year 4, the project will require an investment outlay of $5000000. During years 5 to 10, the project will provide cash inflows of $2 million per year.

Using the appropriate equation(s) and/or theory:

(a) Calculate the project’s NPV and IRR where the discount rate is 12%. Is the project a worthwhile investment based on these two measures? Why or why not?

(b) Calculate the project’s MIRR. Is the project a worthwhile investment based on this measure? Why or why not?

Answer 1

Period	Cash Flow	PV Factor 12%	PV
0	-20000000	1	-20000000
1	4000000	0.8929	3,571,428.57
2	4000000	0.7972	3,188,775.51
3	4000000	0.7118	2,847,120.99
4	-5000000	0.6355	-3177590.39
5	2000000	0.5674	1,134,853.71
6	2000000	0.5066	1,013,262.24
7	2000000	0.4523	904,698.43
8	2000000	0.4039	807,766.46
9	2000000	0.3606	721,220.05
10	2000000	0.3220	643,946.47
NPV			-8344517.95

Period	Cash Flow
0	-20000000
1	4000000
2	4000000
3	4000000
4	-5000000
5	2000000
6	2000000
7	2000000
8	2000000
9	2000000
10	2000000
IRR using Excel IRR Funtion	-1.02%

No the project isnot worthwhile as the NPV is negative

Period	Cash Flow
0	-20000000
1	4000000
2	4000000
3	4000000
4	-5000000
5	2000000
6	2000000
7	2000000
8	2000000
9	2000000
10	2000000
MIRR using Excel MIRR Funtion	7.11%

No MIRR is below 12% hence project is not worthwile