A project has an initial cost of $62,375, expected net cash inflows of $10,000 per year...

A project has an initial cost of $62,375, expected net cash inflows of $10,000 per year for 12 years, and a cost of capital of 9%. What is the project's MIRR? Do not round intermediate calculations. Round your answer to two decimal places.

Expert Solution

MIRR or Modified Internal rate of return assumes that all positive cash inflows are reinvested at the firm's cost of capital. The formula to calculate MIRR is:

Where n is the time period.

So, the first step is to calculate the future value of all cash inflows at the end of year 12. The formula to calculate future value is:

where,

C is the annual cash flow
r is the interest rate
n is the time period

So, the future value of $10,000 cash inflows for 12 years at an interest rate of 9% is given as:

Now, the present value of cash outflows is $62,375 because this is the only cash outflow and it happens today, so there is no need to discount. Plugging these values in the MIRR formula, we get

or MIRR is 10.26%

jeff jeffy answered 2 years ago

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