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MIRR unequal lives. Grady Enterprises is looking at two project opportunities for a parcel of land the company currently owns. The first project is a restaurant, and the second project is a sports facility The projected cash flow of the restaurant is an initial cost of $1,600,000 with cash flows over the next six years of $250,000 (vear one), $240,000 (year two), $270,000 (years three through five), and S1,730,000 (year six), at which point Grady plans to sell the restaurant. The sports facility has the following cash flows: an initial cost of $2,440,000 with cash flows over the next four years of $360,000 (years one through three) and $3,420,000 (year four), at which point Grady plans to sell the facility. The appropriate discount rate for the restaurant is 10.5% and the appropriate discount rate for the sports facility is 11.5%. What are the MIRRS for the Grady Enterprises projects? What are the MIRRS when you adjust for the unequal lives? Do the MIRR adjusted for unequal lives change the decision based on the MIRRS? Hint Take all cash flows to the same ending period as the longest project If the appropriate reinvestment rate for the restaurant is 10.5%, what is the MIRR of the restaurant project? 13.89 % (Round to two decimal places.) If the appropriate reinvestment rate for the sports facility is 11.5%, what is the MIRR of the sports facility? % (Round to two decimal places.)

MIRR unequal lives. Grady Enterprises is looking at two project opportunities for a parcel of land the company currently owns. The first project is a restaurant, and the second project is a sports facility The projected cash flow of the restaurant is an initial cost of $1,600,000 with cash flows over the next six years of $250,000 (vear one), $240,000 (year two), $270,000 (years three through five), and S1,730,000 (year six), at which point Grady plans to sell the restaurant. The sports facility has the following cash flows: an initial cost of $2,440,000 with cash flows over the next four years of $360,000 (years one through three) and $3,420,000 (year four), at which point Grady plans to sell the facility. The appropriate discount rate for the restaurant is 10.5% and the appropriate discount rate for the sports facility is 11.5%. What are the MIRRS for the Grady Enterprises projects? What are the MIRRS when you adjust for the unequal lives? Do the MIRR adjusted for unequal lives change the decision based on the MIRRS? Hint Take all cash flows to the same ending period as the longest project If the appropriate reinvestment rate for the restaurant is 10.5%, what is the MIRR of the restaurant project? 13.89 % (Round to two decimal places.) If the appropriate reinvestment rate for the sports facility is 11.5%, what is the MIRR of the sports facility? % (Round to two decimal places.)

Cornerstones of Cost Management (Cornerstones Series)
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter19: Capital Investment
Section: Chapter Questions
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MIRR unequal lives. Grady Enterprises is looking at two project opportunities for a parcel of land the company currently owns. The first project is a restaurant, and the second project is a sports facility. The projected cash flow of the restaurant is an initial cost of $1,600,000 with cash flows over the next six years of $250,000 (year one), $240,000 (year two), $270,000 (years three through five), and $1,730,000 (year six), at which point Grady plans to sell the restaurant. The sports facility has the following cash flows: an initial cost of $2,440,000 with cash flows over the next four years of $360,000 (years one through three) and $3,420,000 (year four), at which point Grady plans to sell the facility. The appropriate discount rate for the restaurant is 10.5% and the appropriate discount rate for the sports facility is 11.5%. What are the MIRRS for the Grady Enterprises projects? What are the MIRRS when you adjust for the unequal lives? Do the MIRR adjusted for unequal lives change the decision based on the MIRRS? Hint: Take all cash flows to the same ending period as the longest project. If the appropriate reinvestment rate for the restaurant is 10.5%, what is the MIRR of the restaurant project? 13.89 % (Round to two decimal places.) If the appropriate reinvestment rate for the sports facility is 11.5%, what is the MIRR of the sports facility? |% (Round to two decimal places.)
Transcribed Image Text:MIRR unequal lives. Grady Enterprises is looking at two project opportunities for a parcel of land the company currently owns. The first project is a restaurant, and the second project is a sports facility. The projected cash flow of the restaurant is an initial cost of $1,600,000 with cash flows over the next six years of $250,000 (year one), $240,000 (year two), $270,000 (years three through five), and $1,730,000 (year six), at which point Grady plans to sell the restaurant. The sports facility has the following cash flows: an initial cost of $2,440,000 with cash flows over the next four years of $360,000 (years one through three) and $3,420,000 (year four), at which point Grady plans to sell the facility. The appropriate discount rate for the restaurant is 10.5% and the appropriate discount rate for the sports facility is 11.5%. What are the MIRRS for the Grady Enterprises projects? What are the MIRRS when you adjust for the unequal lives? Do the MIRR adjusted for unequal lives change the decision based on the MIRRS? Hint: Take all cash flows to the same ending period as the longest project. If the appropriate reinvestment rate for the restaurant is 10.5%, what is the MIRR of the restaurant project? 13.89 % (Round to two decimal places.) If the appropriate reinvestment rate for the sports facility is 11.5%, what is the MIRR of the sports facility? |% (Round to two decimal places.)
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