Dry-Sand Company Is Considering Investing in a New Project

question 52

Multiple Choice

Dry-Sand Company is considering investing in a new project. The project will need an initial investment of $1,200,000 and will generate $600,000 (after-tax) cash flows for three years. However, at the end of the fourth year, the project will generate -$500,000 of after-tax cash flow due to dismantling costs. Calculate the MIRR (modified internal rate of return) for the project if the cost of capital is 15 percent. The reinvestment rate is 12 percent.

• A)11.5 percent
• B)12.6 percent
• C)28.2 percent
• D)20.4 percent

---

Definitions:

Bilateral Contract

A contract involving two parties where each promises to perform an act in exchange for the other's act.

Unilateral Contract

A contract in which one party makes a promise that the other party can accept only through an action, not a promise.

Accept

To receive something willingly or to agree to a proposition or offer.

Promisee

The person to whom a promise is made or directed in a contract, opposite to the promisor.