Houston Inc

question 68

Multiple Choice

Houston Inc.is considering a project which involves building a new refrigerated warehouse which will cost $7,000,000 at t = 0 and which is expected to have operating cash flows of $500,000 at the end of each of the next 20 years.However, repairs which will cost $1,000,000 must be incurred at the end of the 10th year.Thus, at the end of Year 10 there will be a $500,000 operating cash inflow and an outflow of $1,000,000 for repairs.If Houston's required rate of return is 12 percent, what is the project's MIRR? (Hint: Think carefully about the MIRR equation and the treatment of cash outflows.)

• A)7.75%
• B)8.29%
• C)9.81%
• D)11.45%
• E)12.33%

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Definitions:

Variable Manufacturing Costs

Costs that vary directly with the level of production output, including raw materials and direct labor costs.

Fixed Manufacturing Costs

Costs that remain constant regardless of the level of production or sales volume, such as rent and salaries.

Selling Commission

A fee paid to a sales agent or an employee based on the value of sales generated.

Contribution Margin

The amount remaining from sales revenue after variable production costs have been deducted, indicating how much contributes toward covering fixed costs and generating profit.