Question

Project A requires an initial outlay at t = 0 of $2,000, and its cash flows are the same in Years 1 through 10. Its IRR is 13%, and its WACC is 12%. What is the project's MIRR? Do not round intermediate calculations. Round your answer to two decimal places.

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Answer 1

At irr,present value of inflows=present value of outflows.

Hence present value of inflows=$2000

Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate

2000=Annuity[1-(1.13)^-10]/0.13

2000=Annuity*5.42624348

Annuity=2000/5.42624348

=$368.579111(Approx)

Future value of annuity=Annuity[(1+rate)^time period-1]/rate

=368.579111[(1.12)^10-1]/0.12

=368.579111*17.5487351

=$6468.09718(Approx)

MIRR=[Future value of annuity/Present value of outflows]^(1/time period)-1

=[6468.09718/2000]^(1/10)-1

=12.45%(Approx)

answered by: anonymous