Question

Project L requires an initial outlay at t = 0 of $65,000, its expected cash inflows are $13,000 per year for 9 years, and its WACC is 10%. What is the project's MIRR? Do not round intermediate calculations. Round your answer to two decimal places.

Answer 1

Project
Combination approach
All negative cash flows are discounted back to the present and all positive cash flows are compounded out to the end of the project’s life
Thus year 8 modified cash flow=(27866.65)+(25333.32)+(23030.29)+(20936.63)+(19033.3)+(17303)+(15730)+(14300)+(13000)
=176533.19
Thus year 0 modified cash flow=-65000
=-65000
Discount rate	0.1
Year	0	1	2	3	4	5	6	7	8	9
Cash flow stream	-65000	13000	13000	13000	13000	13000	13000	13000	13000	13000
Discount factor	1	1.1	1.21	1.331	1.4641	1.61051	1.771561	1.948717	2.143589	2.357948
Compound factor	1	2.143589	1.948717	1.771561	1.61051	1.4641	1.331	1.21	1.1	1
Discounted cash flows	-65000	0	0	0	0	0	0	0	0	0
Compounded cash flows	0	27866.65	25333.32	23030.29	20936.63	19033.3	17303	15730	14300	13000
Modified cash flow	-65000	0	0	0	0	0	0	0	0	176533.2
Discounting factor (using MIRR)	1	1.11741	1.248605	1.395204	1.5590148	1.742059	1.946594	2.175143	2.430527	2.715895
Discounted cash flows	-65000	0	0	0	0	0	0	0	0	65000
NPV = Sum of discounted cash flows
NPV=	3.01152E-08
MIRR is the rate at which NPV = 0
MIRR=	11.74%
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor
Compounding factor =	(1 + reinvestment rate)^(time of last CF-Corresponding period in years)