Question

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.

What is the project's MIRR at r = 7%? Do not round intermediate
calculations. Round your answer to two decimal places.

%

What is the project's MIRR at r = 13%? 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

MIRR = (FV of cash Inflow/PV of Cash outflow)^{1/n}
-1

When r = 7% , FV of cash inflow = 27.7*(1+7%) = 29.639

PV of cash outflows = 4.4 + 25/(1+7%)^{2} = 26.236

MIRR = (29.636/26.236)^{1/2}-1 = 6.29%

When r = 13% , FV of cash inflow = 27.7*(1+13%) = 31.301

PV of cash outflows = 4.4 + 25/(1+13%)^{2} = 23.979

MIRR = (31.301/23.979)^{1/2}-1 = 14.25%

NPV with r =7% = -4.4 + 27.7/(1+7%) - 25/(1+7%)^{2} =
-0.35

NPV with r =13% = -4.4 + 27.7/(1+13%) - 25/(1+13%)^{2} =
0.53

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