Blue Llama Mining Company is analyzing a project that requires an initial investment of $2,225,000. The projects
Question:
Blue Llama Mining Company 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 | $300,000 |
| Year 2 | –125,000 |
| Year 3 | 475,000 |
| Year 4 | 450,000 |
Blue Llama Mining Company’s WACC is 7%, and the project has the same risk as the firm’s average project. Calculate this project’s modified internal rate of return (MIRR):
If Blue Llama Mining Company’s managers select projects based on the MIRR criterion, they should (ACCEPT/REJECT) this independent project.
Which of the following statements about the relationship between the IRR and the MIRR is correct?
-A typical firm’s IRR will be greater than its MIRR.
-A typical firm’s IRR will be less than its MIRR.
-A typical firm’s IRR will be equal to its MIRR.
Expert Answer:
The Modified Internal Rate of Return MIRR is a modified version of the Internal Rate of Return IRR t... View the full answer
Fundamentals of Financial Management
ISBN: 978-0324597707
12th edition
Authors: Eugene F. Brigham, Joel F. Houston
