There is a project with the following cash flows: CF0 = -850; CF1 = 300; CF2...

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%
		15.65%
		17.21%
		18.29%
		19.15%

Solutions

Expert Solution

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%.

jeff jeffy answered 1 year ago

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