In: Finance
There is a project with the following cash flows: CF0 = -850; CF1 = 300; CF2 =320; CF3 = 340; CF4 = 360. If the appropriate discount rate is 10%, what is the project's MIRR? (Assume the same reinvestment rate)
14.08% |
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15.65% |
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17.21% |
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18.29% |
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19.15% |
Compute the present value of cash flows, using MS-excel as shown below:
The result of the above excel table is as follows:
Hence, the present value of cash flows is $1038.52195888.
Compute the future value of cash inflows, using the equation as shown below:
Future value = Present value*(1 + Rate)Time
= $1,038.52195888*(1 + 0.10)4
= $1,038.52195888*1.4641
= $1,520.49999999
Hence, the future value of cash flows is $1,520.49999999.
Compute the modified internal rate of return (MIRR), using the equation as shown below:
MIRR = (Future value of cash inflows/ Present value of outflows)1/ Time – 1
= ($1,520.49999999/ $850)1/4 – 1
= (1.7888235294)1/4 – 1
= 1.156489981 – 1
= 15.6489981%
Hence, the MIRR is 15.65%.