4. Which of the following statements is CORRECT? Assume that the project being c
ID: 2796088 • Letter: 4
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4. Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows, with one cash outflow att- 0 followed by a series of positive cash flows A. A project's MIRR is always greater than its regular IRR. B. A project's MIRR is always less than its regular IRR. C. If a project's IRR is greater than its WACC, then its MIRR will be greater than the IRR. D. To find a project's MIRR, we compound cash inflows at the regular IRR and then find the discount rate that causes the PV of the terminal value to equal the initial cost. E. To find a project's MIRR, the textbook procedure compounds cash inflows at the WACC and then finds the discount rate that causes the PV of the terminal value to equal the initial cost. 5. Malholtra Inc. is considering a project that has the following cash flow and WACC data. What is the project's MIRR? Note that a project's projected MIRR can be less than the WACC (and even negative), in which case it will be rejected. WACC: 10.00% 0 $975 2 S320 4 S360 ear Cash flows A. 14.45% B. 12.92% C. 12.57% D. 11.28% E. 11.75% $300 $340Explanation / Answer
Ans 4 E) Terminal Value means Present Value at future point of time of all Future cash flows. In case of a project with one cash outflow and it is followed by series of positive cash inflaws,the MIRR method compounding the cash flaws to form a terminal value and find discount rate that causes the PV of the terminal value equal the project's cost. Ans 5 E) A B C D E WACC= 10% Year Project X's Cash F;ow Prsent Value 15 0 $ (975.00) 1 $ (975.00) 16 1 $ 300.00 0.909 $ 272.70 17 2 $ 320.00 0.8264 $ 264.45 18 3 $ 340.00 0.751 $ 255.34 19 4 $ 360.00 0.683 $ 245.88 NPV= $ 63.37 MIRR= MIRR(C15:C19,C13,C13) MIRR= 11.75%
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