Question

Cold Goose Metal Works Inc. is analyzing a project that requires an initial investment of $2,225,000. The project’s expected cash flows are:

Year	Cash Flow
Year 1	$350,000
Year 2	–200,000
Year 3	400,000
Year 4	400,000

Cold Goose Metal Works Inc.’s WACC is 9%, and the project has the same risk as the firm’s average project. Calculate this project’s modified internal rate of return (MIRR).

18.18%

20.46%

19.32%

-14.33%

If Cold Goose Metal Works Inc.’s managers select projects based on the MIRR criterion, they should _____ this independent project.

Answer 1

Based on the given data,

The MIRR of this Project is -14.33%; Hence, since the MIRR is negative, the project is NOT recommended for acceptnig; Hence,

Answer: If Cold Goose Metal Works Inc.’s managers select projects based on the MIRR criterion, they should REJECT this independent project.

Computation of MIRR: This can be computed using formula in Excel = MIRR("range of cashflows", discounting factor%, reinvestment factor%); Here, both discounting factor % and reinvestment factor% are considered same.