Your company has approximately $500,000 to invest in a project and has narrowed their selection down to the following three projects. The hurdle rate (WACC) used by the company is 15%. For purposes of payback analysis, assume that the payouts on each project flow evenly in the year of the payout. Project Alpha requires a $480,000 investment and will pay $240,000 at the end of each of the first four years, and then the project will be scrapped. Project Beta requires a $420,000 investment, and will pay $125,000 out in each of the ten years, and then will be scrapped. Project Gamma requires a $470,000 investment, but takes seven years to begin generating profits. It will generate $450,000 per year in years 7 through 9, and $950,000 in year 10. After year 10, this project will also be scrapped.
State dollar answers to the nearest whole dollar. For percentage answers, drop the % sign and round to one decimal place.
1. What is the MIRR of Alpha?
2. What is the MIRR of Gamma?
3. In what month is payback achieved for Gamma? (i.e. 3 yrs and 2 months would be in month 38)
4. In what month is discounted payback achieved for Alpha? (i.e. 3 yrs and 2 months would be in month 38)
5. In what month is discounted payback achieved for Beta? (i.e. 3 yrs and 2 months would be in month 38)
6. In what month is discounted payback achieved for Gamma? (i.e. 3 yrs and 2 months would be in month 38)
7. What is the crossover point for Project Alpha and Project Beta?