Question

Project A costs $4,000, and its cash flows are the same in Years 1 through 10....

Project A costs $4,000, and its cash flows are the same in Years 1 through 10. Its IRR is 15%, and its WACC is 8%. What is the project's MIRR? Do not round off intermediate calculation. Round your answer to two decimal places. %

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Answer #1

At irr,present value of inflows=present value of outflows.

Hence Present value of inflows=4000

Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate

4000=Annuity[1-(1.15)^-10]/0.15

4000=Annuity*5.018768626

Annuity=4000/5.018768626

=$797.01(Approx).

NOW:

Future value of annuity=Annuity[(1+rate)^time period-1]/rate

=797.01[(1.08)^10-1]/0.08

=797.01*14.48656247

=$11545.91(Approx)

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

=[11545.91/4000]^(1/10)-1

=11.18%(Approx).

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