Question

Project L costs $75,000, its expected cash inflows are $9,000 per year for 8 years, and its WACC is 13%. What is the project's MIRR? Do not round intermediate calculations. Round your answer to two decimal places.

Answer 1

Reinvestment Approach
All cash flows except the first are compounded to the last time period and IRR is calculated
Thus year 8 modified cash flow=(21173.45)+(18737.57)+(16581.92)+(14674.26)+(12986.07)+(11492.1)+(10170)+(9000)
=114815.37
Discount rate	13.000%
Year	0	1	2	3	4	5	6	7	8
Cash flow stream	-75000.000	9000.000	9000.000	9000.000	9000.000	9000.000	9000.000	9000.000	9000.000
Compound factor	1.000	2.353	2.082	1.842	1.630	1.443	1.277	1.130	1.000
Compounded cash flows	-75000.000	21173.45	18737.57	16581.92	14674.26	12986.07	11492.1	10170	9000
Modified cash flow	-75000.000	0	0	0	0	0	0	0	114815.370
Discounting factor (using MIRR)	1.000	1.055	1.112	1.173	1.237	1.305	1.376	1.452	1.531
Discounted cash flows	-75000.000	0.000	0.000	0.000	0.000	0.000	0.000	0.000	75000.000
NPV = Sum of discounted cash flows
NPV Discount rate =	0.00
MIRR is the rate at which NPV = 0
MIRR=	5.47%
Where
Compounding factor =	(1 + reinvestment rate)^(time of last CF-Corresponding period in years)
compounded Cashflow=	Cash flow stream*compounding factor