Green Submarine has a project with the following cash flows: Year Cash Flows −$17,950 1 7,180...

Green Submarine has a project with the following cash flows: Year Cash Flows −$17,950 1 7,180 2 12,950 3 8,030 4 −3,150 The discounting rate is 7 percent and the reinvestment rate is 9 percent. What is the MIRR for this project using the combination approach?

Finance

Expert Solution

MIRR is calculated by solving the following equation:

Positive CFs are compounded using the reinvestment rate and the negative CFs are discounted using the finance rate or the discount rate

Year	CF	Compounding Factor	Compounded CF
1	$ 7,180.00	(1+0.09)^(8-1)=	1.828039121	1.82803912081669*7180=	$ 13,125.32
2	$ 12,950.00	(1+0.09)^(8-2)=	1.677100111	1.677100110841*12950=	$ 21,718.45
3	$ 8,030.00	(1+0.09)^(8-3)=	1.538623955	1.5386239549*8030=	$ 12,355.15
				FV = Sum of all compounded CF	$ 47,198.92

Year	CF	Discount Factor	Discounted CF
0	$-17,950.00	1/(1+0.09)^0=	1	1*-17950=	$ -17,950.00
4	$ -3,150.00	1/(1+0.09)^4=	0.708425211	0.708425211065196*-3150=	$ -2,231.54
				PV = Sum of all Discounted CF	$ 20,181.54

jeff jeffy answered 1 year ago

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