Question

Project A costs $4,000, and its cash flows are the same in Years 1 through 10. Its IRR is 18%, and its WACC is 10%. What is the project's MIRR? Do not round intermediate calculations. Round your answer to two decimal places.

Answer 1

Since cash inflows aren't given, we will find them.

At NPV=0 ,We get the IRR. The rule is applied here to find the cash inflows.

NPV= (Cif/i)x (1-(1+i)^-n ) – Initial Investment

Cif is the required cash inflow

N is no of periods

i is the given irr rate.

0= (cif/0.18)× (1-(1+0.18)^-10)- 4000

Cif= 890.05

Now determining MIRR

since all cash flows are equal , we will use FV of annuity

FV= c/i * ((1+r)^n -1)

FV= 890.05* ((1+0.1)^10-1)= 14185.10

MIRR= (14185 10/4000)^(1/10)-1

MIRR = 13.50%