Purchase Solution

Shellfish processing CFO: NPV, MIRR, and WACC

Not what you're looking for?

Ask Custom Question

A shellfish processing company is thinking about purchasing a new clam digger for $14,000. The expected net cash flows resulting from the digger are $9,000 in year 1, $7,000 in the 2nd year, $5,000 in the 3rd year, and $3,000 in the 4th year. Should the company purchase this digger if its cost of capital is 12 percent? In providing your answer, you must present the NPV along with your decision to accept/reject.

What is the internal rate of return for a project that has a net investment of $60,000 and the following net cash flows: Year 1 = $15,000; Year 2 = $20,000; Year 3 = $25,000; Year 4 = $30,000?

A CFO 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. The firm's WACC is 10%.
Project A
Year Cash Flow
0 -$800
1 350
2 350
3 350

Shannon Industries is considering a project which has the following cash flows:

Year Cash Flow
0 ?
1 $2,000
2 3,000
3 3,000
4 1,500

The project has a payback of 2.5 years. The firm's cost of capital is 12 percent. What is the project's net present value?

The Seattle Corporation has been presented with an investment opportunity which will yield end-of-year cash flows of $30,000 per year in Years 1 through 4, $35,000 per year in Years 5 through 9, and $40,000 in Year 10. This investment will cost the firm $150,000 today, and the firm's cost of capital is 10 percent.

What is the NPV for this investment?

Now assume the Federal Reserve takes actions which increases interest rates and therefore impacts the firm's WACC. If the new WACC for Seattle Corporation becomes 14 percent, by how much did the change in the WACC affect the project's forecasted NPV? That is, find the �"NPV resulting from the Federal Reserve actions.

Attachments
Purchase this Solution
Solution Summary

Your tutorial is in excel, attached, and includes an exhibit showing the future cash flows and uses excel's functions to compute NPV, IRR and MIRR.

Solution provided by:
Carol Sargent, PhD
Education
  • BSc, University of Virginia
  • MSc, University of Virginia
  • PhD, Georgia State University
Recent Feedback
  • "hey just wanted to know if you used 0% for the risk free rate and if you didn't if you could adjust it please and thank you "
  • "Thank, this is more clear to me now."
  • "Awesome job! "
  • "ty"
  • "Great Analysis, thank you so much"
Purchase this Solution
Free BrainMass Quizzes
Social Media: Pinterest

This quiz introduces basic concepts of Pinterest social media

Income Streams

In our ever changing world, developing secondary income streams is becoming more important. This quiz provides a brief overview of income sources.

Change and Resistance within Organizations

This quiz intended to help students understand change and resistance in organizations

Understanding Management

This quiz will help you understand the dimensions of employee diversity as well as how to manage a culturally diverse workforce.

Writing Business Plans

This quiz will test your understanding of how to write good business plans, the usual components of a good plan, purposes, terms, and writing style tips.

View More Free Quizzes
Related BrainMass Solutions

  • Payback method for capital budgeting decisions

    You should recommend that the project be rejected because, although its NPV is positive, its MIRR is less than the WACC, and that indicates that the firm's value will decline if it is accepted. FALSE MIRR is more than WACC. 5.

  • WACC: Tesar Chemicals, Malholtra Inc

    Note that a project's MIRR can be less than the WACC (and even negative), in which case it will be rejected.

  • Pappas Products: MIRR or IRR in choosing the project

    WACC: 11.00% 0 1 2 3 4 CFS ($1,100) $550 $600 $100 $100 CFL ($2,700) $650 $725 $800 $1,400 IRR Project S 12.2% Project L 10.7% MIRR Project S 11.54% Project L 10.81% NPV Project

  • MCQ on capital budgeting

    335500 Project Cash Flows: IRR, WACC, NPV and MIRR 2. Assume a project has normal cash flows. All else equal, which of the following statements is correct? a. The project's IRR increases as the WACC declines. b.

  • Multiple choice

    To find the MIRR, we first compound cash flows at the regular IRR to find the TV, and then we discount the TV at the WACC to find the PV. c. The NPV and IRR methods both assume cash flows can be reinvested at the WACC.

  • Multiple choice

    At WACC = 12%, the NPV is positive and so IRR would be greater than 12% since at IRR the NPV=0 c. is not correct, the MIRR would be less than the IRR and the not the WACC 2. The project's NPV increases as the WACC declines.

  • Finance: MIRR, IRR, and NPV.

    333008 10 Finance multiple choice questions: project payback period, IRR, WACC, MIRR, NPV 1. Which of the following statements is CORRECT?

  • Superior Living, Inc Project Financials: Financial Statements and Plans

    Meeting with the financial analyst, discuss three key valuation methodologies that companies use-- NPV, IRR, and MIRR.

  • NPV, IRR and MIRR

    529356 NPV, IRR and MIRR Given the following capital project data: Cost of automation system (invoice): $750,000 Transportation and installation: $150,000 Training: $100,000 Firm's WACC: 10% Firm's tax rate: 40% Depreciation

View More Related Solutions