Question

Question 16 (5 points) A firm considers a project with the following cash flows: the initial cost at time 0 is $1,000 (negative), the following cash flows received are $1,000, $100, $50, $50 in Year 1 to Year 4, respectively. What's its MIRR if WACC=10%? A) 13.00% B) 12.16% C) 11.70% D) 9.98% E) 10.62%

Answer 1

Modified Internal Rate of Return (MIRR): wacc 10% Cash Outflow Cost of capital 10% Year Cash Outflow 0 $1,000.00 =1/1.10^0 Present Value of Cash outflow D.F. Present Value 1 $1,000.00 $1,000.00 Cash Inflow Year Cost of capital 10% Cash Intflow F.V. Factor FV 1 $1,000.00 $100.00 $50.00 =1.1043 =1.10^2 2 1.3310 1.2100 1.1000 $1,331.00 $121.00 $55.00 3 =1.10^1 4 1.0000 $50.00 =1.10^0 Future Value of cash inflow $50.00 $1,557.00

MIRR = Future Value of Positive Cash Flow -) ^1/n-1 Present Value of Negative Cash Flow MIRR= ( $1,557.00 $1,000.00 -) ^ 1/4 - 1 MIRR = 1.557 )^0.25 - 1 MIRR = 1.11704881 - 1 MIRR = 0.11704881 MIRR = 11.70% MIRR of the Project is 11.70%