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Yellow Day has a project with the following cash flows: Year Cash Flows 0 −$25,900 1...

Yellow Day has a project with the following cash flows:

Year Cash Flows
0 −$25,900
1 10,000
2 15,900
3 9,060
4 −3,050


What is the MIRR for this project using the reinvestment approach? The interest rate is 8 percent

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Answer #1

When reinvestment approach is assumed, MIRR is based on reinvestment at a specified rate. MIRR is modified version of IRR. SO, the rate to calculate is based on same approach to calculate IRR.

Year

Cash flows

Reinvested cash flows

0

-25900

1

10000

1.08^3

1.259712

12597.12

2

15900

1.08^2

1.1664

18545.76

3

9060

1.08^1

1.08

9784.8

4

-3050

1.08^0

1

-3050

total

37877.68

MIRR = [(37877.68/25900)^(1/4)] -1 = 9.9692%

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