Question

Project L costs $75,000, its expected cash inflows are $13,000 per year for 8 years, and its WACC is 12%. What is the project's MIRR? Do not round intermediate calculations. Round your answer to two decimal places

Answer 1

Given,

Cost = $75000

Annual cash inflows (A) = $13000

Number of years (n) = 8 years

WACC (r) = 12% or 0.12

Solution :-

Future value of cash inflows

= A/r x [(1 + r)ⁿ - 1]

= $13000/0.12 x [(1 + 0.12)⁸ - 1]

= $13000/0.12 x [(1.12)⁸ - 1]

= $13000/0.12 x [2.47596317628 - 1]

= $13000/0.12 x 1.47596317628

= $159896.010763

Now,

MIRR = (future value of cash inflows/cost)^1/n - 1

= ($159896.010763/$75000)^1/8 - 1

= (2.13194681017)^1/8 - 1

= 1.0993 - 1 = 0.0993 or 9.93%