Question

Problem 11-22
MIRR

A project has the following cash flows:

0

1

2

3

4

5

-$300

$164

-$X

$221

$360

$476

This project requires two outflows at Years 0 and 2, but the remaining cash flows are positive. Its WACC is 12%, and its MIRR is 14.69%. What is the Year 2 cash outflow? Round your answer to the nearest cent.

Answer 1

We use the formula:
A=P(1+r/100)^n
where
A=future value
P=present value
r=rate of interest
n=time period.

Hence future value of inflows=164(1.12)^4+221(1.12)^2+360(1.12)+476

=$1414.479575

Present value of outflows=Cash outflows*Present value of discounting factor(rate%,time period)

=300+X/1.12^2

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

0.1469=[1414.479575/(300+X/1.12^2)]^(1/5)-1

(1+0.1469)^5=[1414.479575/(300+X/1.12^2)]

1.984393353=[1414.479575/(300+X/1.12^2)]

(300+X/1.12^2)=1414.479575/1.984393353

X/1.12^2=712.8020121-300

X=(412.8020121*1.12^2)

which is equal to

=$517.82(Approx).