Business, 26.06.2020 15:01 DaisyHargrove23

A firm is considering two mutually exclusive projects, X and Y, with the following cash flows: 0 1 2 3 4 Project X -$1,000 $100 $320 $400 $700 Project Y -$1,000 $1,000 $110 $55 $45 The projects are equally risky, and their WACC is 13%. What is the MIRR of the project that maximizes shareholder value

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Answer from: que81hhh

Project X maximizes shareholder value (highest NPV) and has a MIRR of 14.27%.

Explanation:

year cash flow project X cash flow project Y

0 -1,000 -1,000

1 100 1,000

2 320 110

3 400 55

4 700 45

WACC = 13%

Using an excel spreadsheet I calculated the projects' NPV, IRR and MIRR

NPV IRR MIRR

project X $45.65 15% 14.27%

project Y $36.82 16% 14.03%

The modified internal rate of return (MIRR) considers that the project's cash inflows are invested at the company's WACC and the initial investment is financed at a certain debt rate (in this case the same WACC).

Answer from: Quest

Secured loans are protected by collateral security. examples: title loans where the borrower uses the car title as collateral security interest rates are lower and repayments are longer therefore risk is low as a collateral security is given as guarantee to the bank in case of failure to pay the loanunsecured loans are not protected by collateral security but it is given on the creditworthiness of the borrower, trusting that she/he will pay on time. examples; payday loans is a short term loan where the borrower lends money from the bank and pays is back when the borrower receives his/her wages.interest rates are high and repayments are shorter. but the risk is high as no collateral security is given as a guarantee to the bank for payment of the loan

Answer from: Quest

Answerrouting table;

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