You are getting ready to start a new project that will incur some cleanup and sh

Question

You are getting ready to start a new project that will incur some cleanup and shutdown costs when it is completed. The project costs $5.31 million up front and is expected to generate $1.15 million per year for 10 years and then have some shutdown costs at the end of year 11. Use the MIRR approach to find the maximum shutdown costs you could incur and still meet your cost of capital of 14.9% on this project The maximum shutdown costs allowable to still have a positive NPV is $ (Round to the nearest O Type heve to search

Explanation / Answer

Inflows:

1.15 x 1 = 1.15

1.15 x 1/1.149 = 1

1.15 x 1/(1.149)^2 =0.87

1.15 x 1/(1.149)^3 =0.76

1.15 x 1(1.149)^4=0.66

1.15 x 1(1.149)^5=0.57

1.15 x 1(1.149)^6=0.50

1.15 x 1(1.149)^7=0.43

1.15 x 1(1.149)^8=0.38

1.15 x 1(1.149)^9=0.33

Net Present value of income = $6.65

Project Cost = $5.31

Therefore, maximun shutdown cost that could be incurred = $1.34

So, Current value of cost = 1.34 x 1/(1.149^10)= $0.33

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