Purchase Solution

Pappas Products: MIRR or IRR in choosing the project

Not what you're looking for?

Ask Custom Question

Pappas Products is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and not repeatable. The CEO believes the IRR is the best selection criterion, while the CFO advocates the MIRR. If the decision is made by choosing the project with the higher IRR rather than the one with the higher MIRR, how much, if any, value will be forgone? Note that under some conditions the choice will have no effect on the value gained or lost. (see attached)

a. $1.60
b. $1.44
c. $1.30
d. $0.00
e. $1.60

Attachments
Purchase this Solution
Solution Preview

Please see the attached file.

WACC: 11.00%
0 1 2 3 4
CFS ($1,100) $550 $600 $100 $100
CFL ($2,700) $650 $725 $800 $1,400 ...

Purchase this Solution
Free BrainMass Quizzes
Six Sigma for Process Improvement

A high level understanding of Six Sigma and what it is all about. This just gives you a glimpse of Six Sigma which entails more in-depth knowledge of processes and techniques.

Production and cost theory

Understanding production and cost phenomena will permit firms to make wise decisions concerning output volume.

Social Media: Pinterest

This quiz introduces basic concepts of Pinterest social media

Understanding the Accounting Equation

These 10 questions help a new student of accounting to understand the basic premise of accounting and how it is applied to the business world.

Basics of corporate finance

These questions will test you on your knowledge of finance.

View More Free Quizzes
Related BrainMass Solutions

  • Value forgone

    263366 Pappas Products: use IRR or MIRR for project selection Pappas Products is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and not repeatable.

  • Capital Budgeting and Financial Investment Decision Making

    The project would then be accepted or rejected based on the results of the MIRR. If the MIRR results are less than the required rate of return, the project would be rejected. 2.

  • IRR, MIRR, and Discounted Cashflow

    This solution helps in calculating IRR, MIRR, and Discounted Cashflow.

  • Does MIRR solve all of IRR's shortcomings?

    Discuss a few risks or key assumptions and the effects of possible changes in their values 2: NPV versus IRR Discuss some of the factors that would cause you to rely more on either NPV or IRR. Does MIRR solve all of IRR's shortcomings?

  • Identify and explain various capital budgeting methods

    MIRR 'Modified Internal Rate Of Return - MIRR' As per investopedia, "While the internal rate of return (IRR) assumes the cash flows from a project are reinvested at the IRR, the modified IRR assumes that positive cash flows are reinvested at the firm's

  • Finance: MIRR, IRR, and NPV.

    Which of the following independent projects should Tapley accept, assuming that the company uses the NPV method when choosing projects? a. Project A, which has average risk and an IRR = 9%. b.

  • NPV, IRR, MIRR, Pay Back

    As a result, using MIRR versus IRR better reflects the value of a project.

  • WACC: Tesar Chemicals, Malholtra Inc

    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 MIRR can be less than the WACC (and even negative), in which case it will be rejected.

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

    When it comes to choosing between IRR and MIRR, IRR is more of an optimistic view of returns while MIRR is a realistic view.

View More Related Solutions