Question

RAK Corp. is evaluating a project with the following cash flows:

  

Year	Cash Flow
0	–$	29,500
1		11,700
2		14,400
3		16,300
4		13,400
5	–	9,900

  

The company uses a discount rate of 13 percent and a reinvestment rate of 6 percent on all of its projects.

  

1. Calculate the MIRR of the project using the discounting approach. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

  

MIRR_______%

  

2.Calculate the MIRR of the project using the reinvestment approach. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

  

MIRR_______%

3. Calculate the MIRR of the project using the combination approach. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

  

MIRR_______%

Answer 1

Calculation of MIRR using Discounting Approach							using trial and error method)
	Year	Cashflow	PVF @ 16%	DCF	PVF @ 20%	DCF	PVF @ 23%	DCF	PVF @ 24%	DCF	PVF @ 25%	DCF
	0	-29500	1	-29500	1	-29500	1	-29500	1	-29500	1	-29500
	1	11700	0.862068966	10086.21	0.833333333	9750	0.81300813	9512.195	0.806451613	9435.484	0.8	9360
	2	14400	0.743162901	10701.55	0.694444444	10000	0.66098222	9518.144	0.650364204	9365.245	0.64	9216
	3	16300	0.640657674	10442.72	0.578703704	9432.87	0.537383918	8759.358	0.524487261	8549.142	0.512	8345.6
	4	13400	0.552291098	7400.701	0.482253086	6462.191	0.436897495	5854.426	0.422973598	5667.846	0.4096	5488.64
	5	-9900	0.476113015	-4713.52	0.401877572	-3978.59	0.355201215	-3516.49	0.34110774	-3376.97	0.32768	-3244.03
				4417.655		2166.474		627.6314		140.7503		-333.792
				24	140.7503
				25	-333.792
			inc	1	474.5423	dec
				?	140.7503
				0.296602
			MIRR	24.2966	%
Calculation of MIRR using Reinvestment Approach
	Year	Cashflow	FVF @ 6%	FV CF
	1	11700	1.26247696	14770.98				FV = PV (1+r)^n
	2	14400	1.191016	17150.63
	3	16300	1.1236	18314.68				54540.29 = 29500 (1+r)^5
	4	13400	1.06	14204
	5	-9900	1	-9900				(1+r)^5 = 1.8488
				54540.29				r = 13.08%
	Year	Cashflow	PVF @ 13%	DCF
								MIRR =13.08%
	0	-29500	1	-29500
				-29500
Calculation of MIRR using Combined Approach
	Time 0 Cashflows		- 29500 - 9900/1.13^5 =		-34873.3234
	Time % cash Flows		11700(1.06^4)+ 14400(1.06^3)+16300(1.06^2)+13400(1.06) =					64440.29
	FV = PV (1+r)^n
	64440.29= 34873.32 (1+r)^5
	(1+r)^5 = 1.1.8478
	r = 13.07%
	MIRR = 13.07%

( square root 15 times , -1 , / 5 , +1 , *= 15 times ) no intermidiate pressing of any keys on calculator