Drinkable Water Systems is analyzing a project with projected cash inflows of $127,400, $209,300, and - $46,000 for Years 1 to 3, respectively. The project costs $251,000 and has been assigned a discount rate of 12.5 percent. Should this project be accepted based on the discounting approach to the modified internal rate of return

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Business

Sara Jordan

19 August, 11:24

Drinkable Water Systems is analyzing a project with projected cash inflows of $127,400, $209,300, and - $46,000 for Years 1 to 3, respectively. The project costs $251,000 and has been assigned a discount rate of 12.5 percent. Should this project be accepted based on the discounting approach to the modified internal rate of return

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Jaylene Hamilton · Answer 1

The project should not be accepted.

Explanation:

By using the modified internal rate of return (MIRR) the project offers a discount rate of 10,29% to make the net present value equal to zero. This means that at a discount rate of 12.5% the net present value is negative, and the company would lose money. The company should look for another project with higher inflows for the same initial cost ($251.000)