Question

Solo Corp. is evaluating a project with the following cash flows:

Year	CF
0	-$48,000
1	17,000
2	21,900
3	25,400
4	18,000
5	-6,500

Use the discounting approach to determine the MIRR. Assume the discount rate is 8%.

Select one:

A. 15.64%

B. 19.86%

C. 20.32%

D. 20.98%

E. 21.51%

Answer 1

Under discounting MIRR approach all negative Cash Flows will be discounted back using the discount rate.

PV of negative cash flos = -$48,000 + (-$6,500 / (1+8%)^5]

= -$48,000 - $4,423.79077

= -$52,423.79078

FV of Positive Cash Flows = [$17,000 * (1+8%)^4] + [$21,900 * (1+8%)^3] + [$25,400 * (1+8%)^2] + [$18,000 * (1+8%)^1]

= [$17,000 * 1.36048896] + [$21,900 * 1.259712] + [$25,400 * 1.1664] + [$18,00 * 1.08]

= $23,128.31232 + $27,587.6928 + $29,626.56 + $19,440

= $99,782.5652

MIRR = nth root of (FV of positive cash flows / PV of negative cash flows) - 1

= 5Th root of ($99,782.5652 / $52,423.79078) - 1

= 5th root of (1.903383247) - 1

= 1.137379113 - 1

= 0.137379113

= 13.74%

Therefore, MIRR using discounted approach is 13.74%