CENGAGE MINDTAP

Ch 11-End-of-Chapter Problems - The Basics of Capital Budgeting

6. Problem 11.19 (Multiple IR and MIRR)

A mining company is deciding whether to open a strip mine with an initial outlay at 1-0 of $2 million Cash inflows of $12.5 million would occur at the end of Year 1. The land must be returned

to its natural state so there is a cash outflow of $12 milion, payable at the end of Year 2

Select the project's NPV profile.

The correct

Ch 11-End-of-Chapter Problems - The Basics of Capital Budgeting

100 200 300 400 500

The correct sketch is -Select--

b. Should the project be

WACC)

if WACC-10%7

Should the project be accepted if WACC - 20%?

c. What is the project's MIRR at WACC=10%? Do not round intermediate calculations. Round your answer to two decimal places.

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What is the project's MIRR at WACC = 20%? Do not round intermediate calculations. Round your answer to two decimal places.

Does MIRR lead to the same accept/reject decision for this project as the NPV method?

-Select-

Does the MIRR method always lead to the same accept/reject decision as NPV? (Hint: Consider mutually exclusive projects that differ in size.)