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Celestial Crane Cosmetics is analyzing a project that requires an initial investment of $2,750,000. The project’s expected cash flows are:


Year Cash Flow
1 $350,000
2 -125,000
3 450,000
4 425,000

Celestial Crane Cosmetics's WACC is 9%, and the project has the same risk as the firm's average project.

1. Calculate this project's modified internal rate of return (MIRR). Choose from the options given below:

a. 23.25%
b. 17.19%
c. 24.26%
d. -18.52%

2. If Celestial Crane Cosmetics's managers select projects based on the MIRR criterion, they should _ _ _ _ _ this independent project.

Respuesta :

Answer and Explanation:

1. The computation of the MIRR is shown below;

Year  Cash flows

0       $ -2,750,000

1        $ 350,000

2      $ -125,000

3      $ 450,000

4       $ 425,000

WACC 9%

MIRR -16.79%

This is the answer but the same is not provided in the given options

2, As we can see that the MIRR comes in negative so this independent project should not be accepted

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