Question

MIRR Project L costs $70,000, its expected cash inflows are $9,000 per year for 8 years, and its WACC is 11%. What is the project's MIRR? Round your answer to two decimal places. Do not round your intermediate calculations. %

Answer 1

Solution:-

The MIRR can be calculated as follows:-

MIRR=( Future value of cash inflows/PV of cash outflows)^(1/n) -1

Now,

PV of cash outflow = $70,000

n= 8 years

a) Calculation of FV of cash inflows :-

Re investment rate = 11%

Annual cash inflow = $9000.

FV of cash inflow

=9000*(1.11)⁷+9000*(1.11)⁶+9000*(1.11)⁵+9000*(1.11)⁴+9000*(1.11)³+9000*(1.11)²+9000*(1.11)¹+9000

=18,685.44+16,833.73+15,165.52+13,662.63+12308.68+11088.9+9990+9000

=$106,734.91

MIRR=($106,734.91/$70,000)^(1/8) -1

           =1.054147-1

            =5.41%

Hence the MIRR of the project = 5.41%

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