What is the modified internal rate of return for a 3-year project with the following characteristics?...

What is the modified internal rate of return for a 3-year project with the following characteristics?

Cash flow at time year 0 = -$100,000

Cash flow at time year 1 = $50,000

Cash flow at time year 2 = $50,000

Cash flow at time year 3 = $50,000

Corporate cost of capital = 10%

		21%
		30%
		18%
		15%

Expert Solution

18%

Working;

Modified Internal rate of return				=	((Future Value of positive cash flows/Present Value of negative Cash flows)^(1/Life))-1
				=	((165500/100000)^(1/3))-1
				=	18%

Working:

Future Value of positive cash flows:

Year	Cash flows	Future Value of 1	Future Value of cash flows
a	b	c=1.10^(3-a)		d=b*c
1	$ 50,000	1.2100		$ 60,500
2	$ 50,000	1.1000		$ 55,000
3	$ 50,000	1.0000		$ 50,000

Total				$ 1,65,500

jeff jeffy answered 3 years ago

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