Alyeska salmon Inc.,a large salmon canning firm operating out of Valdez,Alaska,has a new automated production line project it is considering.The project has a cost of $275,000 and is expected to provide after-tax annual cash flows of $73,306 for eight years.The firm's management is uncomfortable with the IRR reinvestment assumption and prefers the modified IRR approach.You have calculated a cost of capital for the firm of 12 percent.What is the project's MIRR?

Question

Quizplus · Accepted Answer

Step 1 - Find the PV of all cash outflows.
The initial investment is the only outflow, so PV = -275,000
Step 2 - Find the FV of all cash inflows.
FV = PMT 11ea7fdb_fbe9_a482_a768_3fbf08b184ba_TB2902_11 FV = 73,306 11ea7fdb_fbe9_cb93_a768_af33331dfd47_TB2902_11 = $901,641.31
Step 3 - Use a financial calculator to solve for the interest rate.
N = 8, PV = -275,000, PMT = 0, FV = 901,641.31, CPT I/Y = 16%

Alyeska Salmon Inc