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%.
A)8.1%
B)12.6%
C)28.2%

Question

Quizplus · Accepted Answer

MIRR considers the reinvestment rate and the terminal value of the project. In this case, the reinvestment rate is 15% and the terminal value is -$500,000. The MIRR is calculated as 8.1%.

Dry-Sand Company Is Considering Investing in a New Project