Question

find MIRR for a project with a cost of -$20,000 and subsequent cash flows of 10,000; $40,000, -$5,000; -$30,000. use wacc of 6%. will you proceed with this project? why or why not ?

Answer 1

	Combination approach
	All negative cash flows are discounted back to the present and all positive cash flows are compounded out to the end of the project’s life
	Thus year 4 modified cash flow=(11910.16)+(44944)
	=56854.16
	Thus year 0 modified cash flow=-20000-4198.1-23762.81
	=-47960.91
	Discount rate	6.000%
	Year	0	1	2	3	4	5
	Cash flow stream	-20000.000	10000.000	40000.000	-5000.000	-30000.000	0.000
	Discount factor	1.000	1.060	1.124	1.191	1.262	1.338
	Compound factor	1.000	1.191	1.124	1.060	1.000	0.943
	Discounted cash flows	-20000.000	0	0	-4198.1	-23762.81	0
	Compounded cash flows	0.000	11910.16	44944	0	0	0
	Modified cash flow	-47960.910	0	0	0	56854.160	0
	Discounting factor (using MIRR)	1.000	1.043	1.089	1.136	1.185	1.237
	Discounted cash flows	-47960.910	0.000	0.000	0.000	47960.910	0.000
	NPV = Sum of discounted cash flows
	NPV=	0.00
	MIRR is the rate at which NPV = 0
	MIRR=	4.34%
	Where
	Discounting factor =	(1 + discount rate)^(Corresponding period in years)
	Discounted Cashflow=	Cash flow stream/discounting factor
	Compounding factor =	(1 + reinvestment rate)^(time of last CF-Corresponding period in years)
	Compounded Cashflow=	Cash flow stream*compounding factor

Reject project as MIRR value of 4.34% is less than WACC of 6%