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.
A)8.1 percent
B)12.6 percent
C)28.2 percent
D)20.4 percent

Question

Quizplus · Accepted Answer

The MIRR is 8.1 percent. The MIRR is calculated by finding the internal rate of return (IRR) of the project's cash flows, and then adjusting the IRR for the cost of capital. The IRR is the discount rate that makes the net present value of the project's cash flows equal to zero. The MIRR is calculated by finding the IRR of the project's cash flows, and then adjusting the IRR for the cost of capital. The MIRR is calculated by finding the IRR of the project's cash flows, and then adjusting the IRR for the cost of capital.

Dry-Sand Company Is Considering Investing in a New Project