Question

A- Project A requires an initial outlay at t = 0 of $4,000, and its cash flows are the same in Years 1 through 10. Its IRR is 16%, and its WACC is 12%. What is the project's MIRR? Do not round intermediate calculations. Round your answer to two decimal places.

B- Project L requires an initial outlay at t = 0 of $63,000, its expected cash inflows are $14,000 per year for 10 years, and its WACC is 12%. What is the project's payback? Round your answer to two decimal places.

C- Project L requires an initial outlay at t = 0 of $75,000, its expected cash inflows are $11,000 per year for 9 years, and its WACC is 14%. What is the project's MIRR? Do not round intermediate calculations. Round your answer to two decimal places.

Answer 1

A

PVOrdinary Annuity = C*[(1-(1+i/100)^(-n))/(i/100)]

C = Cash flow per period

i = interest rate

n = number of payments

4000= Cash Flow*((1-(1+ 16/100)^-10)/(16/100))

Cash Flow = 827.6

Project A
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 8 modified cash flow=(2295)+(2049.11)+(1829.56)+(1633.54)+(1458.51)+(1302.24)+(1162.72)+(1038.14)+(926.91)+(827.6)
=14523.33
Thus year 0 modified cash flow=-4000
=-4000
Discount rate	0.12
Year	0	1	2	3	4	5	6	7	8	9	10
Cash flow stream	-4000	827.6	827.6	827.6	827.6	827.6	827.6	827.6	827.6	827.6	827.6
Discount factor	1	1.12	1.2544	1.404928	1.5735194	1.762342	1.973823	2.210681	2.475963	2.773079	3.105848
Compound factor	1	2.773079	2.475963	2.210681	1.9738227	1.762342	1.573519	1.404928	1.2544	1.12	1
Discounted cash flows	-4000	0	0	0	0	0	0	0	0	0	0
Compounded cash flows	-0.00025	2295	2049.11	1829.56	1633.54	1458.51	1302.24	1162.72	1038.14	926.91	827.6
Modified cash flow	-4000	0	0	0	0	0	0	0	0	0	14523.33
Discounting factor (using MIRR)	1	1.137629	1.2942	1.472319	1.6749525	1.905474	2.167723	2.466064	2.805466	3.191579	3.630832
Discounted cash flows	-4000	0	0	0	0	0	0	0	0	0	4000
NPV = Sum of discounted cash flows
NPV=	1.29919E-06
MIRR is the rate at which NPV = 0
MIRR=	13.76%
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)