Clay Industries, a diversified industrial firm, is considering investing into a new manufacturing facility which would allow the Company to expand its operations into a promising new market for industrial motors, specifically the High Temperature Superconducting, or HTS motors. This project is one of many currently under consideration for Clay Industries, and the amount of R&D expense allocated toward researching this new manufacturing facility is residual in nature. The following information applies to this new project.
R&D expense for the quarter $15,000
Initial cash outlay $45,000 -
t1: ($40,000)
t2: ($10,000)
t3: $40,000
t4: $40,000
t5: $16,000
t6: $25,000
Assuming no taxes and a $0.00 salvage value at t6, what is the MIRR of this project?
Click on the arrows to vote for the correct answer
A. B. C. D. E.Explanation
In order to calculate the Modified Internal Rate of Return, a explicit discount rate must be given. In this example, the MIRR cannot be calculated due to the fact that no discount rate has been provided. Remember that while the Internal Rate of Return is calculated without the use of an explicit discount rate, the Modified
Internal Rate of Return requires some figure for the cost of capital.