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In: Finance

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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