Question

Project A costs $3,000, and its cash flows are the same in Years 1 through 10. Its IRR is 17%, and its WACC is 8%. What is the project's MIRR? Do not round intermediate calculations. Round your answer to two decimal places.

____%

Answer 1

Given about a project.

initial cost C0 = $3000

IRR = 17%

WACC = 8%

term period = 10 years

So, annual cash flow of the project using annuity formula is

PMT = PV*r/(1 - (1+r)^-10) = 3000*0.17/(1 - 1.17^-10)/0.17 = $643.97

MIRR = (FV of positive cash flows/PV of negative cash flows)^(1/t) - 1

FV of positive cash flows is calculated using WACC as financing rate, using annuity is

FV = PMT*((1+WACC)^t - 1)/WACC = 643.97*(1.08^10 - 1)/0.08 = $9328.91

PV of negative cash flows = C0 = 3000

=> MIRR = (9328.91/3000)^(1/10) - 1 = 12.01%