Question

Mass Waste Disposal Inc. is considering the construction of a facility at a cost of $20 million. The project will produce positive cash flows of $7 million per year for the next 4 years but the 5th and final year will have a net negative cash flow of $5 million. If the reinvestment rate is 10% and the cost of capital is 9%, the MIRR of this project is ________ and the project should be ________. (accepted/rejected)

Answer 1

As per MIRR formula:
MIRR = (Future value of cash inflows/Present value of cash outflows)^(1/n)-1
	Year	Cash Outflows	PVF at 9%	Present value
	0	-20000000	1	-20000000
	5	-5000000	0.649931386	-3249657
			Total	-23249657
	Year	Cash inflows	FVF at 10%	Future Value
	1	7000000	1.4641	10248700
	2	7000000	1.331	9317000
	3	7000000	1.21	8470000
	4	7000000	1.1	7700000
			Total	35735700
MIRR = (35735700÷23249657)^(1/5)-1
MIRR =	8.98%
Project should be rejected