Question

A project has an initial cost of $70,000, expected net cash inflows of $13,000 per year for 11 years, and a cost of capital of 12%. What is the project's MIRR? (Hint: Begin by constructing a time line.) Do not round intermediate calculations. Round your answer to two decimal places.

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Answer 1

Initial Cost = $70,000
Annual Cash Inflows = $13,000
Time Period = 11 years
Cost of Capital = 12%

Future Value of Cash Inflows = $13,000*1.12^10 + $13,000*1.12^9 + … + $13,000*1.12 + $13,000
Future Value of Cash Inflows = $13,000 * (1.12^11 - 1) / 0.12
Future Value of Cash Inflows = $13,000 * 20.654583
Future Value of Cash Inflows = $268,509.579

MIRR = (Future Value of Cash Inflows / Initial Cost)^(1/Period) - 1
MIRR = ($268,509.579 / $70,000)^(1/11) - 1
MIRR = 3.835851^(1/11) - 1
MIRR = 1.13 - 1
MIRR = 0.13 or 13.00%

MIRR of the project is 13.00%