Question

Alfa company is considering a new product that requires $300,000 intial investment and an additional $100,000...

Alfa company is considering a new product that requires $300,000 intial investment and an additional $100,000 cash outflow on the last year of the project. The project will generate $120,000per year during 4 years and $50,000 on the fifth year.What is the MIRR of the project? This company uses 12 percent as WACC (reinvestment rate).

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Answer #1

The cash Flows given in question are as follows:

Calculating the MIRR by assuming the finance cost of 10%.

Numerator

= (-300000/1.100) + (-100000/1.105) = -362092.1323

Denominator

= (120000/1.121) + ?(120000/1.122) + ?(120000/1.123) + ?(120000/1.124)

= $364481.9216

MIRR = 4th root (Denominator / Numerator ) - 1

= 4th root ?(364481.9216? / 362092.1323) - 1

= 1.006599 - 1 = 0.006599 = 0.6599% or 0.66%

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