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DYI Construction Co. is considering a new inventory system that will cost $750,000. The system is...

DYI Construction Co. is considering a new inventory system that will cost $750,000. The system is expected to generate positive cash flows over the next four years in the amounts of $350,000 in year one, $325,000 in year two, $150,000 in year three, and $180,000 in year four. DYI's required rate of return is 10%. What is the modified internal rate of return of this project?

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Expert Solution

Computation of MIRR
Year Cash flow
0           (750,000.0)
1             350,000.0
2             325,000.0
3             150,000.0
4             180,000.0
we have to first compute the future value of the cash flow from year 1 to 4 for project
Year project L Future value
1             350,000.0 465850 350000*(1+10%)^3
2             325,000.0 393250 325000*(1+10%)^2
3             150,000.0 165000 150000*(1+10%)
4             180,000.0 180000 180000
future value 1204100
now we have to use financial calculator to compute the MIRR
Put in calcluator
PV (750,000.0)
PMT 0
FV 1204100
N 4
Compute I 12.56%
MIRR = 12.56%

jeff jeffy answered 1 year ago
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