Lewis Finance Investor Group, Inc. is considering a new project, which would inc

Question

Lewis Finance Investor Group, Inc. is considering a new project, which would include opening a college textbook store approximately 2 miles north of campus on Rt. 53. The initial investment (outflow) will include inventory, land and a building. The project will be over in 4 years, at which time a textbook retailer is likely to purchase the business. The WACC is expected to be 10%. The following summarizes expected cash inflows:

What is the project’s NPV? Why or why not should the project be accepted?

What is the project’s IRR? Why or why not should the project be accepted?

Compute the project’s MIRR. Why or why not should this project be accepted?

Explanation / Answer

WACC 10% Year 0 1 2 3 4 CF -850 300 320 340 360 DCF -850 272.7273 264.4628 255.447 245.8848 FV of positive CF 399.3 387.2 374 360 NPV 188.522 Accept the project IRR 8.69% Accept the project MIRR 15.65% Accept the project

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