â€‹(MIRR)â€ƒâ€ƒStar Industries owns and operates landfills for several municipalities throughout the Midwestern part of the U.S....

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â€‹(MIRR)â€ƒâ€ƒStar Industries owns and operates landfills for severalmunicipalities throughout the Midwestern part of the U.S. Startypically contracts with the municipality to provide landfillservices for a period of 20 years. The firm then constructs a linedlandfillâ€‹ (required by federalâ€‹ law) that has capacity for fiveyears. The â€‹$9.6 million expenditure required to construct the newlandfill results in negative cash flows at the end of yearsâ€‹ 5, 10,and 15. This change in sign on the stream of cash flows over theâ€‹20-year contract period introduces the potential for multipleâ€‹IRRs, soâ€‹ Star's management has decided to use the MIRR to evaluatenew landfill investment contracts. The annual cash inflows to Starbegin in year 1 and extend through year 20 are estimated to equalâ€‹$3.5 millionâ€‹ (this does not reflect the cost of constructing thelandfills every fiveâ€‹ years). Star uses a 10.4â€‹% discount rate toevaluate its newâ€‹ projects, so it plans to discount all theconstruction costs every five years back to year 0 using this ratebefore calculating the MIRR.
a.What are theâ€‹ project's NPV,â€‹ IRR, andâ€‹ MIRR?
b.Is this a good investment opportunity for Starâ€‹ Industries?Why or whyâ€‹ not?

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3.9 Ratings (717 Votes)

NPV 7802402 million or 780240209 IRR 2404 MIRR 1214 a NPV A B C A B Year n Costs in millions Cash inflow in millions Net cash flow in millions 1r PVIF 11Rn PV net cash flow PVIF 0 960 960 1104 10000 960 1 350 350 09058 317 2 350 350 08205 287 3 350 350 07432 260 4 350 350 See Answer

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