Question

Project L costs $60,000, its expected cash inflows are $8,000 per year for 8 years, and its WACC is 13%. What is the project's MIRR? Round your answer to two decimal places. Do not round your intermediate calculations.

Answer 1

IRR is the Rate at which PV of Cash Inflows are equal to PV of Cash Outflows.

MIRR is similar to IRR. However IRR is assumed that intermediary CFs are reinvested at IRR and MIRR is considers intermediary cash flows at WACC.

Year	CF	Bal Yrs	FVF @13%	FV of CFs
1	8000	7	2.3526	$    18,820.84
2	8000	6	2.0820	$    16,655.61
3	8000	5	1.8424	$    14,739.48
4	8000	4	1.6305	$    13,043.79
5	8000	3	1.4429	$    11,543.18
6	8000	2	1.2769	$    10,215.20
7	8000	1	1.1300	$      9,040.00
8	8000	-	1.0000	$      8,000.00
FV of CFs	$1,02,058.10

Thus $ 60000 has become $ 102,058.10 in 8 Years.

FV = PV (1+r)^n

102058.10 = 60000(1+r)^8

(1+r)^8 = 102058.1 / 60000

= 1.7010

1+r = (1.7010)^(1/8)

= 1.0687

r = 1.0687 - 1

= 0.0687 i.e 6.87%