Question

Katnis Enterprises has a WACC of 10% and  is considering a project that has the following cash flows:

Year	0	1	2	3	4
Cash flows	-$600	$300	$320	-$340	$360

What is Katnis' MIRR?    

	a.	11.75%
	b.	7.59%
	c.	10.25%
	d.	14.10%
	e.	6.52%

Answer 1

The MIRR is computed as shown below:

Year	Cash Flows	Future Value
1	$ 300	= $ 300 x 1.103 = $ 399.3
2	$ 320	= $ 320 x 1.102 = $ 387.2
3	- $ 340	= - $ 340 x 1.10 = - $ 374
4	$ 360	= $ 360 x 1 = $ 360

Total Future value is computed as follows:

= $ 399.3 + $ 387.2 - $ 374 + $ 360

= $ 772.5

So, the MIRR will be computed as follows:

= (Total of future value / Investment)^{1 / 4} – 1

= ($ 772.5 / $ 600)^0.25 - 1

= 6.52% Approximately

So, the correct answer is option e.

Feel free to ask in case of any query relating to this question