Question

Ingram Electric Products is considering a project that has the following cash flow and WACC data. What is the project's MIRR? Note that a project's projected MIRR can be less than the WACC (and even negative), in which case it will be rejected.

WACC:	7.00%
Year	0	1	2	3
Cash flows	-$800	$350	$350	$350

a. 10.00%

b. 12.04%

c. 9.15%

d. 13.97%

e. 14.93%

Answer 1

Project
Combination approach
All negative cash flows are discounted back to the present and all positive cash flows are compounded out to the end of the project’s life
Thus year 3 modified cash flow=(400.72)+(374.5)+(350)
=1125.22
Thus year 0 modified cash flow=-800
=-800
Discount rate	0.07
Year	0	1	2	3
Cash flow stream	-800	350	350	350
Discount factor	1	1.07	1.1449	1.225043
Compound factor	1	1.1449	1.07	1
Discounted cash flows	-800	0	0	0
Compounded cash flows	-0.00125	400.72	374.5	350
Modified cash flow	-800	0	0	1125.22
Discounting factor (using MIRR)	1	1.120424	1.25535	1.406525
Discounted cash flows	-800	0	0	800
NPV = Sum of discounted cash flows
NPV=	7.71552E-07
MIRR is the rate at which NPV = 0
MIRR=	12.04%
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor
Compounding factor =	(1 + reinvestment rate)^(time of last CF-Corresponding period in years)