Question Help MIRR unequal lives. Grady Enterprises is looking at two project op

Question

Question Help MIRR unequal lives. Grady Enterprises is looking at two project opportunities for a parcel of land the company currenty owns. The frst project is a restaurant, and the second project is a sports facility. The projected cash fiow of the restaurant is an initial cost of $1,470,000 with cash fows over thet sx years of $170,000yer one), $300,000 (year two), $200,000 (years three through fve), and $1,710.000 (year six), at which point Grady plars to selle restaurant. The sports faclity has the folowing cash fows: an initial cost of $2.420,000 with cash fows over the next four years of $380,000 (years one through three) and $3,120,000 (year four), at which point Grady plans to selle faality. Theapproprate discount ate for the estaurar t is 105% and the appro nate dse unt ate for the spots fac lity s 125% what are the MiR Rs for the Grady E ter ses pro ects? wh atare the MIRRs hen you a ust for the urequal lives? Do the MRR adusted for unequal lives change the decision based on the MIRRs? Hint Take al cash flows to the same ending period as the longest project lfthe appropriate reinvestment rate for the restaurant is 10.5%, what is the NRR ofthe restaurant project? Round to bwo decimal places) lfthe appropriate renvestrert rate for the sports facity is 125%, what is the MIRR ofthe sports facisty? (Round to two decimal places Based on the MRR, Grady should pick e project. (Selact from the drop-down menu) What is the MIAR of the restaurant when you adjust for unequal lives? %(Round to two decimal places) What is the MIRR of the sports faclity when you adjust for unequal ves? %Round to two decimal places) Based on the odusteds MGrshpik roet(elet fromthe drop-down menu) project (Select from the drop-down menu Enter your answer in each of the answer boxes Save for Later

Explanation / Answer

Year Restaurant Sports 0 -$1,470,000.00 -$2,420,000.00 1 $170,000.00 $380,000.00 2 $300,000.00 $380,000.00 3 $290,000.00 $380,000.00 4 $290,000.00 $3,120,000.00 5 $290,000.00 6 $1,710,000.00 Discount Rate = Finance Rate 10.50% 12.50% Reinvestment rate 10.50% 12.50% MIRR= MIRR(Payments,Finance Rate, Reinvestment Rate) 15.57% 17.22% Grady should pick up sports project because its MIRR is greater than the restaurant. Adjust the shorter project to the longer projects life MIRR for Restaurent will be same = $15.57% Year Sports Future Value Futurevalue 1 $380,000.00 1.802032471 $684,772.34 2 $380,000.00 1.601806641 $608,686.52 3 $380,000.00 1.423828125 $541,054.69 4 $3,120,000.00 1.265625 $3,948,750.00 5 0 1.125 $0.00 6 0 1 $0.00 $5,783,263.55 MIRR = ($5,783,263.55 / $2,420,000)^(1/6) – 1 15.63% Grady should pick up sports project because its MIRR is greater than the restaurant. Adjusting for unequal lives does not change the decision as the sports facility still has a higher MIRR .

Related Questions

Navigate

• Browse (All)
• Browse Q
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.