Reinvestment Rate Analysis

3. Colorado Springs Technology must choose between two methods of producing a new

product.The initial costs and year-end cash flow are as follows:

Year	0	1	2	3	4	5
Method A	--$1,000,000	210,000	250,000	300,000	525,000	600,000
Method B	--$1,000,000	410,000	375,000	475,000	225,000	195,000

1. The company's WACC is 10 percent. Calculate the NPV, IRR & MIRR for each

alternative.

1. Briefly explain the logic in the differences in the IRR and NPV results
2. Briefly explain the benefit of using MIRR.

Answer rating: 100% (QA)

To analyze the two methods we need to calculate the NPV IRR and MIRR for each alternative Method A Year012345 Cash Flow1000000210000250000300000525000... View the full answer