Question

MIRR

A firm is considering two mutually exclusive projects, X and Y, with the following cash flows:

0

1

2

3

4

Project X	-$1,000	$100	$300	$370	$650
Project Y	-$1,000	$1,000	$110	$45	$45

The projects are equally risky, and their WACC is 10%. What is the MIRR of the project that maximizes shareholder value? Round your answer to two decimal places. Do not round your intermediate calculations.

Answer 1

Step-1:Calculation of Net Present value of both project
			Project X			Project Y
Year	Discount factor		Cash flows	Present Value		Cash flows	Present Value
a	b=1.10^-a		c	d=c*b		e	f=e*b
0	1.0000		$ -1,000.00	$ -1,000.00		$ -1,000.00	$ -1,000.00
1	0.9091		$      100.00	$         90.91		$   1,000.00	$      909.09
2	0.8264		$      300.00	$      247.93		$      110.00	$         90.91
3	0.7513		$      370.00	$      277.99		$         45.00	$         33.81
4	0.6830		$      650.00	$      443.96		$         45.00	$         30.74
	Total			$         60.79			$         64.54
	Project Y has higher NPV. Hence, it will maximize shareholders value.
Step-2:Calculation of MIRR of Project Y
			Project Y
Year			Cash flows
0			$ -1,000.00
1			$   1,000.00
2			$      110.00
3			$         45.00
4			$         45.00
Finance rate			10%
Reinvestment rate			10%
MIRR			=mirr(D21:D25,finance rate, reinvestment rate)
			11.73%