Question

A project has the following cash flow data. What is its MIRR?

r =	12.25%
Year	0	1	2	3	4
Cash flows	−$850	$300	$320	$340	$360

Answer 1

Project
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=(424.31)+(403.2)+(381.65)+(360)
=1569.16
Thus year 0 modified cash flow=-850
=-850
Discount rate	0.1225
Year	0	1	2	3	4
Cash flow stream	-850	300	320	340	360
Discount factor	1	1.1225	1.260006	1.414357	1.5876158
Compound factor	1	1.414357	1.260006	1.1225	1
Discounted cash flows	-850	0	0	0	0
Compounded cash flows	0	424.31	403.2	381.65	360
Modified cash flow	-850	0	0	0	1569.16
Discounting factor (using MIRR)	1	1.165633	1.358701	1.583747	1.8460687
Discounted cash flows	-850	0	0	0	850.00086
NPV = Sum of discounted cash flows
NPV=	0.000859549
MIRR is the rate at which NPV = 0
MIRR=	16.56%
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)