Question

Project L costs $70,000, its expected cash inflows are $10,000 per year for 8 years, and its WACC is 11%. What is the project's MIRR? Do not round intermediate calculations. Round your answer to two decimal places.

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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=(20761.6)+(18704.15)+(16850.58)+(15180.7)+(13676.31)+(12321)+(11100)+(10000)
=118594.34
Discount rate	11.000%
Year	0	1	2	3	4	5	6	7	8
Cash flow stream	-70000.000	10000.000	10000.000	10000.000	10000.000	10000.000	10000.000	10000.000	10000.000
Compound factor	1.000	2.076	1.870	1.685	1.518	1.368	1.232	1.110	1.000
Compounded cash flows	-70000.000	20761.6	18704.15	16850.58	15180.7	13676.31	12321	11100	10000
Modified cash flow	-70000.000	0	0	0	0	0	0	0	118594.340
Discounting factor (using MIRR)	1.000	1.068	1.141	1.219	1.302	1.390	1.485	1.586	1.694
Discounted cash flows	-70000.000	0.000	0.000	0.000	0.000	0.000	0.000	0.000	69999.999
NPV = Sum of discounted cash flows
NPV Discount rate =	0.00
MIRR is the rate at which NPV = 0
MIRR=	6.81%
Where
Compounding factor =	(1 + reinvestment rate)^(time of last CF-Corresponding period in years)
compounded Cashflow=	Cash flow stream*compounding factor