Question

RAK Corp. is evaluating a project with the following cash flows:

  

Year	Cash Flow
0	–$	28,600
1		10,800
2		13,500
3		15,400
4		12,500
5	–	9,000

  

The company uses a discount rate of 13 percent and a reinvestment rate of 6 percent on all of its projects.

  

Calculate the MIRR of the project using the discounting approach. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

  

MIRR

%

  

Calculate the MIRR of the project using the reinvestment approach. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

  

MIRR

%

Calculate the MIRR of the project using the combination approach. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

  

MIRR

%

Answer 1

Year (MIRR at Discount rate)	0	1	2	3	4	5
	-28,600	10800	13500	15400	12500	-9000
Discount rate	13%
PV factor	1					0.54276	PV factor=1/(1+r)^n
PV of Cash Outflows	-28,600					-4884.84	PV cash flow = Cash flow * Pv factor
Total PV	-33,485
FV factor		1.630474	1.442897	1.2769	1.13		FV factor =(1+r)^(5-n)
FV of Cash Inflows		17609.11	19479.11	19664.26	14125		Fv cash flow Cash flow * FV factor
Total FV	70877.48449
MIRR=(Total FV/-Total PV)^(1/5)-1	16.18%
Year (MIRR at Reinvest rate)	0	1	2	3	4	5
	-28,600	10800	13500	15400	12500	-9000
Reinvestment rate	6%
PV factor	1					0.747258	PV factor=1/(1+r)^n
PV of Cash Outflows	-28,600					-6725.32	PV cash flow = Cash flow * Pv factor
Total PV	-35,325
FV factor		1.262477	1.191016	1.1236	1.06		FV factor =(1+r)^(5-n)
FV of Cash Inflows		13634.75	16078.72	17303.44	13250		Fv cash flow Cash flow * FV factor
Total FV	60266.90717
MIRR=(Total FV/-Total PV)^(1/5)-1	11.28%
Year (MIRR at Combination)	0	1	2	3	4	5
	-28,600	10800	13500	15400	12500	-9000
Discount rate	13%
PV factor at discount rate	1					0.54276	PV factor=1/(1+ discount)^n
PV of Cash Outflows	-28,600					-4884.84	PV cash flow = Cash flow * Pv factor
Total PV	-33,485
Reinvestment rate	6%
FV factor at reinvestment rate		1.262477	1.191016	1.1236	1.06		FV factor =(1+reinvetsment)^(5-n)
FV of Cash Inflows		13634.75	16078.72	17303.44	13250		Fv cash flow Cash flow * FV factor
Total FV	60266.90717
MIRR=(Total FV at reinvestment rate /-Total PV at discount rate)^(1/5)-1	12.47%

Best of Luck. God Bless