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Just need help with the quantitative problem Capital Budgeting Decision Criteria: MIRR COR Business executives often prefer to work with -Select rate of return, so
Just need help with the quantitative problem
Capital Budgeting Decision Criteria: MIRR COR Business executives often prefer to work with -Select rate of return, so to overcome some of the IRR's limitations the modified IRR was devised. The MIRR equation is: CIR (1+r) (1) (1+ MIRR) PV costs (1+ MIRR)" While the IRR's reinvestment rate assumption is the IRR, the MIRR's reinvestment rate assumption is the project's -Select As a result, the MIRR is generally a better indicator of a project's true -Select than IRR. Unlike the IRR, there can -Select- be more than one MIRR, and the MIRR can be compared with the project's Select when deciding to accept or reject projects. For -Select projects, the NPV, IRR, and MIRR always reach the same accept/reject conclusion; so the three criteria are equally good when evaluating -Select projects. If projects are mutually exclusive and they differ in size, conflicts in project acceptance -Select- varise. In these cases, the -Select- v is the best decision method because it selects the project that maximizes firm value. Quantitative Problem: Bellinger Industries is considering two projects for inclusion in its capital budget, and you have been asked to do the analysis. Both projects' after-tax cash flows are shown on the time line below. Depreciation, salvage values, net operating working capital requirements, and tax effects are all included in these cash flows. Both projects have 4-year lives, and they have risk characteristics similar to the firm's average project. Bellinger's WACC is 7%. 0 1 2 3 Project A Project B -1,400 -1,400 650 250 395 330 230 380 280 730 What is Project A's MIRR? Round your answer to two decimal places. Do not round intermediate calculations. What is Project B's MIRR? Round your answer to two decimal places. Do not round intermediate calculationsStep by Step Solution
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