Question

A project has an initial cost of $74,250, expected net cash inflows of $8,000 per year for 6 years, and a cost of capital of 12%. What is the project's MIRR? Do not round intermediate calculations. Round your answer to two decimal places.

Answer 1

We can compute MIRR using Excel and without using excel.

Using Excel

For Using MIRR we need the borrowing and the Reinvesting Rate. We Assume that the compnay can borrow and reinvest at its cost of Capital therefore we have

Borrowing Rate = Reinvesting Rate = 12%.

It is also assumed that cash inflows occur at the end of each year.

Without Using Excel

MIRR = (Future value of Cash Inflows /Present Value of Cash Putflows)(1/n) - 1

where n is the no. of years.

The assumptions are the same as used above which is as below

Borrowing Rate = Reinvesting Rate = 12%

Also, the cash inflows occour at the end of each year

Now, since there is only one outflow at the start of the project therefore

Presnet value of Cash Outflows = Initial Investment

Years	Cash Flow (A)	Future Value Factor (B)	Computation of Future Value Factors	Future Values of Cash Inflows                     (C = B*A)
Year 1	8000	1.76234	=(1+12%)^(6-1)	14,098.73
Year 2	8000	1.57352	=(1+12%)^(6-2)	12,588.15
Year 3	8000	1.40493	=(1+12%)^(6-3)	11,239.42
Year 4	8000	1.25440	=(1+12%)^(6-4)	10,035.20
Year 5	8000	1.12000	=(1+12%)^(6-5)	8,960.00
Year 6	8000	1.00000	=(1+12%)^(6-6)	8,000.00
Total	64,922

Now therefore using MIRR formula - we have

MIRR = (Future value of Cash Inflows /Present Value of Cash Putflows)(1/n) - 1

MIRR = (64922/74250)^(1/6) -1

MIRR = -2.21%