Your firm is considering a project that will cost $4.55 million upfront, generate cash flows of $3.5

Question:

Your firm is considering a project that will cost $4.55 million upfront, generate cash flows of $3.5 million per year for three years, and then have a cleanup and shutdown cost of $6 million in the fourth year.

a. How many IRRs does this project have?

b. Calculate a modified IRR for this project discounting the outflows and leaving the inflows unchanged. Assume a discount and compounding rate of 10%.

c. Using the MIRR and a cost of capital of 10%, would you take the project?

Compounding
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Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...