Question

Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 13 percent, and that the maximum allowable payback and discounted payback statistics for your company are 3 and 3.5 years, respectively.

Time:	0	1	2	3	4	5
Cash flow:	−$300,000	$52,800	$71,000	$115,000	$109,000	$68,200

Use the MIRR decision rule to evaluate this project. (Do not round intermediate calculations and round your final answer to 2 decimal places.)

Should it be accepted or rejected?

• rejected

• accepted

Answer 1

To find the MIRR, use MIRR function in the EXCEL. If MIRR is greater than required rate of return, project should be accepted and If lower, project should be rejected.

=MIRR(Year0 to Year5 cashflows,finance rate,reinvest rate)

finance rate=reinvest rate=13%

=MIRR(Year0 to Year5 cashflows,13%,13%)

MIRR=11.92% which is lower than 13%. Hence, project should be rejected.

finance rate	13%
reinvest rate	13%
	Cashflows
Year0	-300000
Year1	52800
Year2	71000
Year3	115000
Year4	109000
Year5	68200
MIRR	11.92%