Question

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

Year	Cash Flow
0	–$	28,900
1		11,100
2		13,800
3		15,700
4		12,800
5	–	9,300

The company uses an interest rate of 9 percent on all of its projects

- 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.)

How do i solve with BA II PLUS?

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.)

How do i solve with BA II PLUS?

Answer 1

A) Calculating MIRR using the reinvestment approach

Calculate the future value of all the cash flow except initial cash flow to time 5

Using financial calculator (BA 2 plus)to calculate the future value of each cash flow

Inputs of the calculator are given below

Inputs	Cash flow1	Cash flow 2	Cashflow 3	Cash flow 4
N	4	3	2	1
I/y	9%	9%	9%	9%
Pv	-11,100	-13,800	-15,700	12,800
Pmt	0	0	0	0
Fv	compute	compute	compute	compute
Ans	15,668.56	17,871.40	18,653.17	13,952

Fv of all the cash flow at time 5 =15,668.56 + 17,871.40 + 18,653.17 + 13,952 - 9,300

= $56,845.13

So, the MIRR using the calculator is

Inputs for financial calculator

CF0= -28,900

CF1= 0. Frequency= 4

CF5= 56,845.13 Frequency= 1

IRR = compute

We get IRR as 14.49%

Therefore, MIRR is 14.49%

B) Using combination approach

Future value of all cash inflows at time 5

Using calculator to calculate the future value of cash inflow

Inputs are given for each cash flow in the table below

Inputs	Cash flow 1	Cash flow2	Cashflow 3	Cashflow 4
N	4	3	2	1
I/y	9%	9%	9%	9%
Pv	-11,100	-13,800	-15,700	-12,800
Pmt	0	0	0	0
Fv	compute	compute	compute	compute
Ans	15,668.56	17,871.40	18,653.17	13,952

Total future value at year 5

= 15,668.56 + 17,871.40 +18,653.17 + 13,952

= $66,145.13

Present value of the inflow at time 0

= Cf0 + CF5

Using calculator to calculate the present value at time 0 of Cash flow 5

Inputs: N= 5

I/y= 9%

Pmt= 0

Fv= 9,300

Pv= compute

We get, the present value of cash flow as $6,044.36

Total present value of cash outflow = 28,900 + 6,044.36

= $34,944.36

Using financial calculator to calculate the MIRR

Inputs: CF0= -34,944.36

CF1= 0. Frequency= 4

CF2= 66,145.13. Frequency= 1

IRR= compute

We get, Irr as 13.61%

Therefore , MIRR is 13.61%