P11-18 (similar to) Question Help (MIRR Star Industries owns and o ates land ils

Question

P11-18 (similar to) Question Help (MIRR Star Industries owns and o ates land ils for se e al mu cipalities throughout the Midwest m part of the Star typicaly contacts with the munic paity, provide,ard l servces tr a period of 20 years. The firm then constructs a lined landtill (required by federal law) that has capacity for five years. The $9.6 million expenditure required to construct the new landfill resuits in negative cash fows at the end of years 5,10, and 15. This change in sign on the stream of cash flows over the 20-year contract period introduces the potential for multiple IRRs, so Star's management has decided to use the MIRR to evaluate new landfill investment contracts. The annual cash inflows to Star begin in year 1 and extend through year 20 are estimated to equal $3.3 milion ths does not reflect the cost of constructing the landfils every five years Star uses a 94% discount rate to evaluate its new projects soitplans to discount all tho construction costs every 1" years back to year 0 using this rate before calculating the MIRR a. What are the project's NPV, IRR, and MIRR? b. is this a good investment opportunity for Star Industries? Why or why not? The project NPV where the discount rate is 94% is Smtion. (Round to two de mal places) a. Enter your answer in the answer box and then click Check Answer remaining Clear All Check Answer

Explanation / Answer

NPV= PVCI-PVCO PVCI = PRESENT VALUE OF CASH INFLOW PVCO = PV OF CASH OUTFLOW PVCI = PV X CASH INFLOW PVf= 1/(1+R)^N year cash outflow cash inflow net flow(A) rate pvf(B) (A*B) 0 -9.6 -9.6 1 -9.6 1 3.3 3.3 0.094 0.914077 3.016453 2 3.3 3.3 0.094 0.835536 2.75727 3 3.3 3.3 0.094 0.763744 2.520356 4 3.3 3.3 0.094 0.698121 2.303799 5 -9.6 3.3 -6.3 0.094 0.638136 -4.02026 6 3.3 3.3 0.094 0.638136 2.105849 7 3.3 3.3 0.094 0.533186 1.759514 8 3.3 3.3 0.094 0.487373 1.608331 9 3.3 3.3 0.094 0.445496 1.470138 10 -9.6 3.3 -6.3 0.094 0.407218 -2.56547 11 3.3 3.3 0.094 0.372228 1.228354 12 3.3 3.3 0.094 0.340245 1.122809 13 3.3 3.3 0.094 0.31101 1.026334 14 3.3 3.3 0.094 0.284287 0.938148 15 -9.6 3.3 -6.3 0.094 0.25986 -1.63712 16 3.3 3.3 0.094 0.237532 0.783857 17 3.3 3.3 0.094 0.217123 0.716505 18 3.3 3.3 0.094 0.198467 0.654941 19 3.3 3.3 0.094 0.181414 0.598666 20 3.3 3.3 0.094 0.165826 0.547227 npv= 7.335702

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