Question
In: Finance
A firm is considering two mutually exclusive projects, X and Y, with the following cash flows:...
A firm is considering two mutually exclusive projects, X and Y, with the following cash flows:
| 0 | 1 | 2 | 3 | 4 |
| Project X | -$1,000 | $90 | $300 | $370 | $650 |
| Project Y | -$1,000 | $900 | $100 | $50 | $45 |
The projects are equally risky, and their WACC is 10%. What is the MIRR of the project that maximizes shareholder value? Round your answer to two decimal places. Do not round your intermediate calculations.
____%
Solutions
Expert Solution
MIRR = (n √ Terminal cash outflow / Outflow ) - 1
| Project X | |||
| Year | Cashflows | Compound factor at 10 % | Compounded |
| 1 | 90.00 | 1.331 | 119.79 |
| 2 | 300.00 | 1.21 | 363.00 |
| 3 | 370.00 | 1.1 | 407.00 |
| 4 | 650.00 | 1 | 650.00 |
| Modified Cash Flow | 1,539.79 | ||
| Project Y | |||
| Year | Cashflows | Compound factor at 10 % | Compounded |
| 1 | 900.00 | 1.331 | 1,197.90 |
| 2 | 100.00 | 1.21 | 121.00 |
| 3 | 50.00 | 1.1 | 55.00 |
| 4 | 45.00 | 1 | 45.00 |
| Modified Cash Flow | 1,418.90 | ||
MIRRx = (4 √ 1539.79 / 1000 ) - 1
= 11.39%
MIRRy = (4 √ 1418.90 / 1000 ) - 1
= 9.14 %
Based on the results, it is better to invest in Project X
jeff jeffy answered 1 year agoRelated Solutions
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