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schepotkina [342]
3 years ago
10

Purple Turtle Group is analyzing a project with the following cash flows: Year Cash Flow 0 -$795,000 1 $375,000 2 $-500,000 3 $6

00,000 4 $400,000 This project has cash flows. Purple Turtle Group’s WACC is 5.50%. Calculate this project’s modified internal rate of return (MIRR).
Business
1 answer:
Phantasy [73]3 years ago
6 0

Answer:

MIRR = 4.32%

Explanation:

year           cash flow

0               -$795,000

1                 $375,000

2               -$500,000

3                $600,000

4                $400,000

Since there are 2 cash outflows, the IRR calculation would result in two different answers (1 for every cash outflow), that is why we use the MIRR function in excel.

=MIRR (cash flows, finance rate, reinvestment rate)

=MIRR (-795000 to 400000, 5.5%, 5.5%)

Since we are only given one interest rate, we will use it as our finance rate and our reinvestment rate.

MIRR = 4.32%

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Park Company reports interest expense of $340,000 and income before interest expense and income taxes of $6,120,000.(1) Compute
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Answer: 1. 18 times

2. Park is in better position

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1. Times interest earned is a financial ratio that measures interest coverage. It's essentially to check if a company can pay it's debt payments and is calculated by either EBIT or EBITDA divided by the total interest expense. The higher the better and anything above 2.5 times is usually considered.

Calculating would therefore be,

= $6,120,000 /$340,000

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2. As mentioned in the first answer, for the Times interest earned, the higher it is, the more favourable it is. So Park Company will be considered safer and are most definitely in a better or worse position than its competitor to make interest payments if the economy turns bad. The fact that theirs is 18 means that they can pay off their interest expense 5 times more than their competitor who can only repay 12 times.

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7 0
2 years ago
Davis Florist has two employees, Anita and Jerome, and two tasks that need to be completed, floral arrangements and floral deliv
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Answer:

Davis Florist

a. (Anita, Jerome) __Jerome____ absolute advantage in floral arrangements. __Jerome____ (Anita, Jerome) has an absolute advantage in deliveries.

b. Anita’s opportunity cost of making one floral arrangement is ___0.75__

( 1.33, 0.75, .33, 3) deliveries. Anita’s opportunity cost of making one delivery is __1.33_ (1.33, 0.75, .33, 3) floral arrangements.

c. Jerome’s opportunity cost of making one floral arrangement is ___0.33__(.75,3,1.33..33) deliveries. Jerome’s opportunity cost of making one delivery is 3 (3, 1.33, .75, .33) floral arrangements.

d. (Jerome, Anita)_Jerome____ has a comparative advantage in floral arrangements. (Jerome, Anita)__Anita___ has a comparative advantage in deliveries.

e. Suppose that, initially, both Jerome and Anita spend four hours each day doing floral arrangements and two hours each day doing deliveries. Now suppose they change their tasks, so that each individual does nothing but the task in which she or he has a comparative advantage. How many more floral arrangements and deliveries could they produce each day?

____4_____ additional floral arrangements

____5____ additional deliveries

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Time it takes Anita to finish one floral arrangement = 30 minutes

Time it takes Anita to make a delivery = 40 minutes

Time it takes Jerome to finish one floral arrangement = 10 minutes

Time it takes Jerome to make a delivery = 30 minutes

b) Absolute Advantage: Jerome will finish 3 floral arrangements (30/10), whereas Anita can only finish 1 in 30 minutes.

c) Anita's opportunity cost is the time it will take her to make a delivery using the same time it takes her to finish one floral arrangement.  In 30 minutes time, she can only make (30/40) 0.75 deliveries.  Using 40 minutes of making a delivery, she can finish 1.33 (40/30) floral arrangements.

d) Anita's comparative advantage in making deliveries is based on her opportunity cost when compared with Jerome's opportunity cost of making deliveries.

                                          Floral            Delivery      Total hours

                                    Arrangement

e) Total time spent by

   Anita                                4 hrs              2 hrs          6 hrs

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Number of floral arrangements     8 (240/30)        24 (240/10)   32

Number of deliveries                      3 (120/40)           4 (120/30)     7

                                                         Anita                  Jerome

Number of floral arrangements       0                       36 (360/10)  36

Number of deliveries                        12 (360/30)        0                 12

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