Question

Consider a project with the following cash flows:

Year 0: -$1160
Year 1: $80
Year 2: -$270
Year 3: $580
Year 4: $2290

What is the MIRR of the project if the WACC is 13% and the financing costs are 2% ?

Group of answer choices

22.23%

21.18%

23.27%

Answer 1

MIRR of the Project is 21.18%.

The Calcuation is as below:

MIRR =	(FVCI/PVCO)1/n - 1
	Where
	FVCI	=sum of future values of all net positive cash flows at the end of the project calculated at WACC
	PVCO	= Present Value of negative cash flows calculated at financing cost
	n	= is the number of periods

	Future Value of Positive Cash flows
Year	Cash Flow	F.V. Factor till the end of Project	Future Value
	[Inflow/(outflow)]	[@13 %]	[Cash Flow*F.V. Factor]
1	80	1.4429	115.43
3	580	1.1300	655.40
4	2,290	1.0000	2,290.00
Future Value of Cash Inflows @ WACC		3,060.83

	Present Value of Negative Cash flows
Year	Cash Flow	P.V. Factor till the end of Project	Future Value
	[Inflow/(outflow)]	[@2 %]	[Cash Flow*F.V. Factor]
0	(1,160)	1.0000	(1,160.00)
2	(270)	1.0404	(259.52)
			-
Present Value of Cash Inflows @ Financing Rate	(1,419.52)

MIRR =	(FVCI/PVCO)1/n - 1
	Where
	FVCI	=sum of future values of all net positive cash flows at the end of the project calculated at WACC
	PVCO	= Present Value of negative cash flows calculated at financing cost
	n	= is the number of periods
MIRR=	(3060.83/1419.52)1/4 - 1
	(2.1562)1/4 - 1
	1.21178-1
	0.21178	or Say 21.18%