Compute the MIRR statistic for Project lif the appropriate cost of capital is 12 percent. (Do...

Question

Question

Compute the MIRR statistic for Project lif the appropriate cost of capital is 12 percent. (Do not round intermediate calculat

business finance

Answer 1

Answer #1

We use the formula:
A=P(1+r/100)^n
where
A=future value
P=present value
r=rate of interest
n=time period.

Future value of inflows=5480*(1.12)^3+4330*(1.12)^2+1670*(1.12)+2150

=$17150.9574

MIRR=[Future value of inflows/Present value of outflows]^(1/time period)-1

=[17150.9574/11300]^(1/4)-1

=10.99%(Approx)

Hence since MIRR is less than cost of capital;project must be rejected.

Answer 2

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