Question

If your required rate of return is 7%, calculate the MIRR of a project with the...

  1. If your required rate of return is 7%, calculate the MIRR of a project with the following expected cashflows (in thousands):- (8)

Time

0

1

2

3

4

5

Cashflow

-130

60

70

-60

50

50

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Answer #1

Future value = Present value (1 + rate)^time

Future value of year 1 cash flow = 60 (1 + 0.07)^4 = 78.64776

Future value of year 2 cash flow = 70 (1 + 0.07)^3 = 85.75301

Future value of year 4 cash flow = 50 (1 + 0.07)^1 = 53.5

Future value of year 5 cash flow = 50 (1 + 0.07)^0 = 50

Future value of cash inflow = 78.64776 + 85.75301 + 53.5 + 50 = $267.90077

Present value of cash outflow = Future value / (1 + rate)^time

Present value of cash outflow = 60 / (1 + 0.07)^3

Present value of cash outflow = 60 / 1.22504

Present value of cash outflow = $48.97787

Total cash outflow = 130 + 48.97787 = 178.97787

MIRR = (Future value / initial investment)^1/n - 1

MIRR = (267.90077 / 178.97787)^1/5 - 1

MIRR = (1.49684)^1/5 - 1

MIRR = 1.0840 - 1

MIRR = 0.0840 or 8.40%

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