Question

Calculate the MIRR for a project where the WACC is 7%: Invest: $96 today plus $27 at the end of year 2. Returns: $32, $36, $40, and $45 to be received at the end of years 1, 2, 3, and 4

Please show all calculations no excel

Answer 1

r = WACC = 7%

n = 4 years

Present Value of Cash Outflows = [$96 /(1+7%)^0] + [$27 / (1+7%)^2]

= $96 + ($27 / 1.1449)

= $96 + $23.5828457

= $119.582846

Future Value of Cash Inflows = [$32 / (1+7%)^1] + [$36 / (1+7%)^2] + [$40 / (1+7%)^3] + [$45 / (1+7%)^4]

= [$32 / 1.07] + [$36 / 1.1449] + [$40 / 1.225043] + [$45 / 1.31079601]

= $29.9065421 + $31.4437942 + $32.6519151 + $34.3302845

= $128.332536

MIRR = nth root of [(Future value of +ve cash flows / Present value of -ve cash flows)] - 1

= 4th root of [$128.332536 / $119.582846] - 1

= 4th root of (1.07316844) - 1

= 1.01781061 - 1

= 0.01781061

Therefore, MIRR of the Project is 1.78%