Project A costs $1,000, and its cash flows are the same in Years 1 through 10....

Project A costs $1,000, and its cash flows are the same in Years 1 through 10. Its IRR is 18%, and its WACC is 8%. What is the project's MIRR? Do not round off intermediate calculation. Round your answer to two decimal places.

Expert Solution

Project's MIRR is 18.00%

Working:

Step-1:Calculation of Annual cash inflows

working:

IRR is the rate at which present value of cash inflows is equal to cost.

In formula form,

Cost	=	Annual cash inflows x Present Value of annuity of 1
or,	Annual cash inflows		=	Cost	/	Present Value of annuity of 1
or,	Annual cash inflows		=	$ 1,000	/	4.4941
or,	Annual cash inflows		=	$ 222.51


Working:

Present Value of annuity of 1			=	(1-(1+i)^-n)/i			Where,
			=	(1-(1+0.18)^-10)/0.18			i	18%
			=	4.4941			n	10


Step-2:Calculation of Project's MIRR

Project's MIRR		=	((Future Value of annual cash inflows /Present Value of Cash outflows)^(1/Years))-1
		=	((5233.84/1000)^(1/10))-1
		=	18.00%


Future Value of cash inflows			=	Annual Cash inflows x Future Value of annuity of 1
			=	$ 222.51	x	23.5213
			=	$ 5,233.84

Working:
Future Value of annuity of 1			=	(((1+i)^n)-1)/i			Where,
			=	(((1+0.18)^10)-1)/0.18			i	18%
			=	23.5213			n	10

jeff jeffy answered 2 years ago

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