Question

Can-Do, Inc. is considering expanding its current line of business and has developed the following expected cash flows for the project. Should this project be accepted based on the discounting approach to the modified internal rate of return if the discount rate is 13.4 percent? Why or why not? Show your calculations to prove your answer. show all work

Year	Cash Flow
0	-$380,500
1	$67,500
2	238,900
3	164,500
4	-22,700

Answer 1

Answer :-

Year	Total Cost	PVF @13.4%	PV
0	-380500	1	-380500
1	67500	0.882	59523.81
2	238900	0.778	185776.2
3	164500	0.686	112804.6
4	-22700	0.605	-13726.9
		Total PV	-36122.4
Present Value of Cash Outflows			380500 + 13726.9			394226.9
Future Value of Cash inflows			=			592190.4
PVCI	358104.6
FVF(13.4% , 4)	1.65368
FV of cash inflows	592190.4

Modified IRR = (FVCI / PVCO)^1/4 - 1

= (592190.4 / 394226.9)^1/4 - 1

= 10.71 %

Here the project is not accepted as the modified IRR is lower then the discounting rate

MIRR is better if it is more than the IRR.