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

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Definitions:

Opportunity Situation

A scenario in which conditions are favorable for achieving a specific goal or for seizing a strategic advantage.

Inventory Turnover

A measure of how frequently a company's inventory is sold and replaced over a specific period.

Financial Liquidity

The ease with which an asset can be converted into cash without affecting its market price.

Project Manager's Job

The role responsible for planning, executing, and closing projects, including managing teams, resources, timelines, and project risks.