Question

10. Cashflow patterns and the modified rate of return calculation

Henderson Manufacturing Inc. is analyzing a project with the following projected cash flows:

Year	Cash Flow
0	-$1,324,800
1	300,000
2	450,000
3	546,000
4	360,000

This project exhibits(fill in the blank) cash flows.

Henderson’s desired rate of return is 5.00%. Given the cash flows expected from the company's new project, compute the project’s anticipated modified internal rate of return (MIRR). (Hint: Round all dollar amounts to the nearest whole dollar, and your final MIRR value to two decimal places.)

6.09%

7.61%

8.37%

9.13%

Henderson’s managers are generally conservative, and select projects based solely on the project’s modified internal rate of return (MIRR). Should the company’s managers accept this independent project?

No

Yes

You’ve just learned that the analyst who assembled the project’s projected cash flow information used above didn’t know his inflows from his outflows. You’ve reexamined the source data and determined that the revised annual cash flow information should be:

Year	Cash Flow
0	-$1,147,500
1	300,000
2	-350,000
3	420,000
4	280,000

Again, if Henderson’s desired rate of return is 5.00%, then the project’s revised modified internal rate of return (MIRR) should be   . (Hint: Round all dollar amounts to the nearest whole dollar, and your final MIRR value to two decimal places.)

If, again, Henderson’s managers continue to exhibit their general conservatism and select their investment projects based only on the project’s MIRR, should they accept the project?

No

Yes

Grade It Now

Save & Continue

Continue without saving

Answer 1

EXCEL FORMULA: