The company uses a 11 percent discount rate and an 10 percent reinvestment rate
ID: 2709410 • Letter: T
Question
The company uses a 11 percent discount rate and an 10 percent reinvestment rate on all of its projects. Calculate the MIRR of the project using all three methods using these interest rates.
AND
A project has the following estimated data: price = $85 per unit; variable costs = $31.45 per unit; fixed costs = $6,200; required return = 9 percent; initial investment = $9,000; life = five years. Ignore the effect of taxes.
What is the degree of operating leverage at the financial break-even level of output? (Do not round your intermediate calculations.)
Slow Ride Corp. is evaluating a project with the following cash flows:Explanation / Answer
A. Modified Initial outlay = 12800 + present value of 4400 at 11% discount rate = 15411.19
Year 1 cash flow = 6200
Year 2 cash flow = 6800
Year 3 cash flow = 6300
Year 4 cash flow = 5200
IRR is MIRR here
MIRR = 22.20%
B. FV of all the cash flows except the first one at rate = reinvestment rate = 10% = 27071.22
12800 = 27071.22 /(1+MIRR)^5
MIRR = 16.16%
C. PV of -ve cash flow at required rate = 15411.19
FV of +ve cash flows at reinvestment rate = 31471.22
PV *(1+MIRR)^5 = FV
MIRR = 15.35
MIRR = 8.33%