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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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Answer: Total cost  (23500 hours predicted ) = $ 484625

Explanation:

The question is incomplete the high and low methods requires us to use high and low level of activity together with the corresponding total costs at each level to determine the variable cost per unit. we will provide assumed total costs and nursing hours in order to show how high and low method is used to predict total costs for the next period.

Assume the following were total costs and corresponding nursing hours for the previous 3 months

Total cost                Hours

$560000             30000 hours

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calculating Variable cost using high and low method

Variable cost per unit  = (high cost - low cost)/high hour - low hours)

Variable Cost Per unit =  (840000 - 225000)/ (30000 - 10000) = 16.75

Variable cost per unit = $ 16.75

Fixed costs = 560000 - (28000 x 16.75) =  560000 - 469000

Fixed costs =  $91000

Total cost  (23500 hours predicted ) =Total Fixed cost + Total Variable costs

Total cost  (23500 hours predicted ) = $91000 + (23500 x $16.75)

Total cost  (23500 hours predicted ) == $91000 + $393625

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6 0
3 years ago
In markets where customers are sensitive to price and where internal efficiencies lead to cost advantages allowing for acceptabl
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The correct answer is letter "A": Penetration.

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Total cost of Sales   = Total number of units Sold * Total Cost of inventory sold    

                                  = 100units*$5+ 300units*$5.30+ 200units*$5.35 + 450units*$5.60

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Total units sold=1450  we started from first inventory which was the balance of inventory of 100 units downwards up to the 1450th unit sold that was purchased on the 26th of April by the company.

2. Last in first out method is where the last bought inventory is sold first.

Total cost of sales= Total number of units sold * Total cost of units sold =200units$*5.80+ 600units*$5.60+ 200units*$5.35+300units*$5.30+150units*$5.1

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3. Average Cost = (Sum of all costs/Total number of costs)* total units sold

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