MIRR unequal lives. Grady Enterprises is looking at two project opportunities for a parcel of land the company currently owns. The first project is a restaurant, and the second project is a sports facility. The projected cash flow of the restaurant is an initial cost of $1,570,000 with cash flows over the next six years of $200,000 (year one), $300,000 (year two), $310,000 (years three through five), and $1,790,000 (year six), at which point Grady plans to sell the restaurant. The sports facility has the following cash flows: an initial cost of $2,400,000 with cash flows over the next four years of $410,000 (years one through three) and $2,780,000 (year four), at which point Grady plans to sell the facility. The appropriate discount rate for the restaurant is 11.0% and the appropriate discount rate for the sports facility is 13.0%. What are the MIRRs for the Grady Enterprises projects? What are the MIRRS when you adjust for the unequal lives? Do the MIRR adjusted for unequal lives change the decision based on the MIRRS? Hint: Take all cash flows to the same ending period as the longest project.

MIRR unequal lives. Grady Enterprises is looking at two project opportunities for a parcel of land the company currently owns. The first project is a restaurant, and the second project is a sports facility. The projected cash flow of the restaurant is an initial cost of $1,570,000 with cash flows over the next six years of $200,000 (year one), $300,000 (year two), $310,000 (years three through five), and $1,790,000 (year six), at which point Grady plans to sell the restaurant. The sports facility has the following cash flows: an initial cost of $2,400,000 with cash flows over the next four years of $410,000 (years one through three) and $2,780,000 (year four), at which point Grady plans to sell the facility. The appropriate discount rate for the restaurant is 11.0% and the appropriate discount rate for the sports facility is 13.0%. What are the MIRRs for the Grady Enterprises projects? What are the MIRRS when you adjust for the unequal lives? Do the MIRR adjusted for unequal lives change the decision based on the MIRRS? Hint: Take all cash flows to the same ending period as the longest project.

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Description: MIRR unequal lives. Grady Enterprises is looking at two project opportunities for a parcel of land the company currentlyowns. The first project is a restaurant, and the second project is a sports facility. The projected cash flow of therestaurant is

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 21P

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NPV unequal lives. Grady Enterprises is looking at two project opportunities for a parcel of land the company currently owns. The first project is a restaurant, and the second project is a sports facility. The projected cash flow of the restaurant is an initial cost of $1,600,000 with cash flows over the next six years of $180,000 (year one), $290,000 (year two), $270,000 (years three through five), and $1,760,000 (year six), at which point Grady plans to sell the restaurant. The sports facility has the following cash flows: an initial cost of $2,430,000 with cash flows over the next four years of $440,000 (years one through three) and $3,050,000 (year four), at which point Grady plans to sell the facility. If the appropriate discount rate for the restaurant is 10.0% and the appropriate discount rate for the sports facility is 12.0%, use the NPV to determine which project Grady should choose for the parcel of land. Adjust the NPV for unequal lives with the equivalent annual annuity.…
NPV unequal lives. Grady Enterprises is looking at two project opportunities for a parcel of land the company cumenty owns. The first project is a restaurant, and the second project is a sports facility. The projected cash flow of the restaurant is an initial cost of $1,430,000 with cash flows over the next six years of $170,000 (year one), $200,000 (year two), $330,000 (years three through five), and $1,720,000 (year six), at which point Grady plans to sell the restaurant. The sports facility has the following cash flows: an initial cost of $2.330,000 with cash flows over the next four years of $420,000 years one through three) and $3,480,000 (year four), at which point Grady plans to sell the facility. If the appropriate discount rate for the restaurant is 10.0% and the appropriate discount rate for the sports facility is 11.5%, use the NPV to determine which project Grady should choose for the parcel of land. Adjust the NPV for unequal lives with the equivalent annual annuity. Does…
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