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Other things held constant, an increase in the cost of capital will result in a decrease...

Other things held constant, an increase in the cost of capital will result in a decrease in a projects MIRR
A. True
B.False
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Answer #1

This statement is False.

When computing MIRR, we need to compute the terminal value or future value of the cash inflows of the project using the cost of capital as the reinvestment rate. So, if we increase the cost of capital, the terminal value of the cash inflows will increase.

Now, MIRR is the rate at which Terminal value is equal to the initial investment. Since terminal value will be greater now, it will take a higher rate or MIRR to equalise it with the intial investment. Therefore, MIRR should also increase with increase in capital.

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