Your company is considering a project with an initial outlay of $10,000 in year zero and...

Your company is considering a project with an initial outlay of $10,000 in year zero and the following cash flows over the next 4 years:

Year	Cash flow
1	2,000
2	3,000
3	4,000
4	5,000

Assuming cost of capital is 11%:

1) The project's Modified Internal Rate of Return is:

		12.24%
		12.50%
		0%
		11%
		13.00%

Solutions

Expert Solution

We use the formula:
A=P(1+r/100)^n
where
A=future value
P=present value
r=rate of interest
n=time period.

Future value of inflows=2000*(1.11)^3+3000*(1.11)^2+4000*(1.11)+5000

=$15871.562

MIRR=[Future value of inflows/Present value of outflows]^(1/time period)-1

=[15871.562/10,000]^(1/4)-1

=12.24%(Approx)

jeff jeffy answered 2 years ago

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