An investor is considering a project that will generate $800,000 per year for four years.In addition to upfront costs,at the completion of the project at the end of the fifth year there will be shut-down costs of $500,000.If the cost of capital is 5%,based on the MIRR,at what upfront costs does this project cease to be worthwhile?
A)$2.32 million
B)$2.44 million
C)$2.58 million
D)$2.84 million

Question

Quizplus · Accepted Answer

The Modified Internal Rate of Return (MIRR) considers the cost of capital and the reinvestment rate. By calculating the present value of the cash inflows and the future value of the shutdown costs, the project ceases to be worthwhile when the upfront costs exceed $2.44 million.

An Investor Is Considering a Project That Will Generate $800,000