Question

MIRR

A project has an initial cost of $39,450, expected net cash inflows of $11,000 per year for 10 years, and a cost of capital of 12%. What is the project's MIRR? Do not round intermediate calculations. Round your answer to two decimal places.

Answer 1

MIRR is Modified Internal Rate of Return and at MIRR present value of cash inflows is equals to present value of cash outflows. calculations of MIRR is as below:

Year	Cash Flow	Discounting Factor @12%	Present Value	Discounting Factors @25%	Present value
0	-39450.00	1	-39,450.00	1	-39,450.00
1-10	11,000.00	5.6502**	62,152.20	3.5705	39,275.50
NPV			22,702.20		-174.20

**Annuity Factors

Discounting Factors assumptions:

1. 12% is considered as it is cost of capital
2. 25% is taken so as we will get the negative NPV

We increased the discounting rate by 13% thereby reduction in NPV by 22,876.70 (22,702.20+174.20). We we need the Discounting Factor at which NPV will be reduced by 22,702.20.

MIRR=0.12 + (22702.20*0.13)/22876.70

=0.12 + 0.129008

MIRR=0.249008 i.e.24.90%

At 24.90% present value of cash outflow is equal to present value of cash inflow.