Question

Project L requires an initial outlay at t = 0 of $35,000, its expected cash inflows are $11,000 per year for 9 years, and its WACC is 9%. What is the project's MIRR? Do not round intermediate calculations. Round your answer to two decimal points.

Answer 1

Part A

Future value of cash flows = Annual Cash flows * [(1 + r)^n - 1] / r

r - Int rate per period - WACC = 9 % or 0.09
n - No. of periods = 9

Future value = 11000 * [(1 + 0.09)^9 - 1] / 0.09
Future value = 11000* [(1.09)^9 - 1] / 0.09
Future value = 11000* [2.1719 - 1] / 0.09
Future value = 11000 * 13.0211
Future value = 143232.22

Part B

Modified Internal Rate of Return, shortly referred to as MIRR, is the internal rate of return of an investment that is modified to account for the difference between re-investment rate and investment return

MIRR = {(Future value / initial investment)^1/n} - 1
MIRR = (143232.22/ 35,000)^1/9 - 1
MIRR = (4.0923)^1/9 - 1
MIRR = 1.16949 - 1
MIRR = 0.1695 or 16.95 %

>> decimals are roundedoff

please comment if any further assistance is required