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sasho [114]
3 years ago
5

Your firm is considering a project that will cost $ 4.548 million up​ front, generate cash flows of $ 3.50 million per year for

3 ​years, and then have a cleanup and shutdown cost of $ 6.00 million in the fourth year.
a. How many IRRs does this project​have?



b. Given a cost of capital of 10.0 % should this project be​ accepted?
Business
1 answer:
Alika [10]3 years ago
4 0

Answer:

(a) It will have multiple IRRs

(b) The MIRR calculated is 10.18% . Going by MIRR result , this project will only generate returns that is equal to cost of capital(10%)  .If there are other avaible more viable projects, it should be rejected ( Please see attached computation).

Explanation:

(a) The multiple IRRs occurs when cash flows change sign and result in more than one value for the IRR.

Application of IRR to value an investment is only suitable when the project has normal cash flows, i.e a negative initial cash flow (i.e initial investment) followed by a series of positive cash flows.

In this scenario, we have negative cash flow of $6m  in year 4 which occured after positive cash flow of $3.5m per year from year 1 to 3. This typically make IRR unreliable. To overcome this limitation , we can use Modified Internal Rate of Return (MIRR)

(b) Please see attached for more details.

Download xlsx
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yan [13]

Answer:

Option $6,000

Explanation:

Data provided in the question:

Cost of the machine acquired = $30,000

Classified useful life = 5 years property

Now,

The MARCS rate for 5 years property, the depreciation rate is 20%

Therefore,

The depreciation for the year 2019 will  be

= 20% of the Cost of the machine acquired

= 0.20 × $30,000

= $6,000

Hence,

Option $6,000

7 0
3 years ago
The maximum production of an oil refinery is 1400 barrels per day. The refinery can produce two types of fuel: gasoline and heat
qwelly [4]

Answer:

Maximum total profit = $4,800

Explanation:

When a business is faced with a problem of shortage of a resource which can be used to produced more than one product type, to maximize the use of the resource , the business should allocate it for production purpose in such a way that it maximizes the contribution per unit of the scare resource.

Therefore the Company should allocate the budget cost  to maximize the profit per production cost. This is done as follows:

Calculate the profit per budget cost and rank the product

                                              Gasoline      Heating oil

Profit per product cost         3/6=0.5                    4/8= 0.5

The two products produce the same profit per dollar of cost which is $0.5. So, they are equally ranked.

So the total profit= the budget cost × profit per budget

                           = 9,600× $0.5 =$4,800

Maximum total profit = $4,800

7 0
3 years ago
22. Preferred stockholders hold a claim on assets that has priority over the claims of A) both common stockholders and bondholde
DedPeter [7]

Answer:

C) common stockholders, but after that of bondholders.

Explanation:

Preferred stockholders hold a claim on assets that has priority over the claims of common stockholders but after that of bondholders.  

The preferred shareholder is given preference for the distribution of dividends, which is higher than the common stock. It is paid as per the discretion of the company´s directors. Instead, they have limited right and they do not vote for corporate governance like a common stockholder. In the case of the dissolution of the company, the preferred shareholders will still receive payment due to them in terms of dividends. They have a feature of both bonds and equity stockholders.

6 0
3 years ago
In the long run, an increase in aggregate demand from a position of full employment leads to:
Bess [88]

higher prices and higher outputs

8 0
3 years ago
Gugenheim, Inc., has a bond outstanding with a coupon rate of 7.7 percent and annual payments. The yield to maturity is 8.9 perc
Anna [14]

Answer:

Bond price= $1,793.62

Explanation:

Giving the following information:

Face value= $2,000

Number of periods= 17

Cupon rate= 0.077

YTM= 0.089

T<u>o calculate the price of the bond, we need to use the following formula:</u>

Bond Price​= cupon*{[1 - (1+i)^-n] / i} + [face value/(1+i)^n]

Bond Price​= 154*{[1 - (1.089^-17)] / 0.089} + [2,000/1.089^17)

Bond Price​= 1,324.21 + 469.41

Bond price= $1,793.62

3 0
3 years ago
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