Question

roject L requires an initial outlay at t = 0 of $50,000, 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 places.

  %

Answer 1

Given,

Initial outlay = $50000

Annual cash inflows = $11000

Number of years (n) = 9 years

WACC = 9% or 0.09

Solution :-

Future value of cash inflows

= Annual cash inflows/WACC x [(1 + r)ⁿ - 1]

= $11000/0.09 x [(1 + 0.09)⁹ - 1]

= $11000/0.09 x [(1.09)⁹ - 1]

= $11000/0.09 x [2.17189327943 - 1]

= $11000/0.09 x 1.17189327943

= $143231.400818

Now,

MIRR = (Future value of cash inflows/initial outlay)^1/n - 1

= ($143231.400818/$50000)^1/9 - 1

= (2.86462801636)^1/9 - 1

= 1.1240 - 1 = 0.1240 or 12.40%