A company is considering mutually exclusive projects. The free cash flows associated with these projects are as follows: Project A Project B Initial outlay -$100,000 -$100,000 Year 1 $32,000 $0 Year 2 $32,000 $0 Year 3 $32,000 $0 Year 4 $32,000 $0 Year 5 $32,000 $200,000 The required rate of return on these projects is 11%. They are of equal risk. What is each project’s MIRR? Which project should be chosen? Is it possible for conflicts to exist between NPV and IRR when independent projects are being evaluated? Explain your answer

Financial And Managerial Accounting

15th Edition

ISBN:9781337902663

Author:WARREN, Carl S.

Publisher:WARREN, Carl S.

Chapter26: Capital Investment Analysis

Section: Chapter Questions

Problem 2CMA: Staten Corporation is considering two mutually exclusive projects. Both require an initial outlay of...

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A company is considering mutually exclusive projects. The free cash flows associated with these projects are as follows:

Project A Project B

Initial outlay -$100,000 -$100,000

Year 1 $32,000 $0

Year 2 $32,000 $0

Year 3 $32,000 $0

Year 4 $32,000 $0

Year 5 $32,000 $200,000

The required rate of return on these projects is 11%. They are of equal risk.

What is each project’s MIRR?
Which project should be chosen?
Is it possible for conflicts to exist between NPV and IRR when independent projects are being evaluated? Explain your answer

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