Dry-Sand Company is considering investing in a new project. The project will need an initial investment of $1,200,000 and will generate $600,000 (after-tax)cash flows for three years. However, at the end of the fourth year, the project will generate -$500,000 of after-tax cash flow due to dismantling costs. Calculate the MIRR (modified internal rate of return)for the project if the cost of capital is 15 percent. The reinvestment rate is 12 percent.
A)11.5 percent
B)12.6 percent
C)28.2 percent
D)20.4 percent

Question

Quizplus · Accepted Answer

The MIRR is calculated by finding the future value of positive cash flows at the reinvestment rate, the present value of negative cash flows at the finance rate, and then finding the rate that equates these values over the project's life. Here, the MIRR is approximately 11.5 percent.

Dry-Sand Company Is Considering Investing in a New Project