Question

A firm is considering two mutually exclusive projects, X and Y, with the following cash flows:

Project X -$1,000 $110 $320 $430 $650 

Project Y -$1,000 $900 $110 $45 $55 

The projects are equally risky, and their WACC is 9%. What is the MIRR of the project that maximizes shareholder value? Do not round intermediate calculations. Round your answer to two decimal places.

Answer 1

Answer: 13.19%

Project that maximizes shareholder value will have higher NPV.

2 A B Year Project X Project Y -1000 900 0 1 2 3 -1000 110 320 430 650 110 45 55 8 WACC NPV 10 MIRR 9 9% 162.77 13.19% (8.02) 8.78% 11

A Year Project X Project Y 20 3 1 -1000 110 320 430 -1000 900 110 4 2 5 3 45 6 4 650 55 8 WACC 9 NPV 10 MIRR 0.09 =NPV($B$8,B3:36)+B2 =MIRR(B2:B6,$B$8,$B$8) =NPV($B$8,C3:C6)+C2 =MIRR(C2:C6,$B$8,$B$8) 11