Question

Project L costs $40,000, its expected cash inflows are $12,000 per year for 8 years, and its WACC is 14%. What is the project's MIRR? Do not round intermediate calculations. Round your answer to two decimal places.

Answer 1

MIRR = ( FV_c / PV_fc )^1/n -1

where, FV_c is the  future value of positive cash flows at the cost of capital(investing rate = 0.1)

and PV_fc is the present value of negative cash flows at the financing cost (financing rate = 0.04)

CF₀ = -40000
CF₁ - CF₈ = 12000

WACC = r = 14%

=> PV_fc = 40000

FV_c = 12000*1.14⁷ + 12000*1.14⁶ + 12000*1.14⁵ + 12000*1.14⁴ + 12000*1.14³ + 12000*1.14² + 12000*1.14 + 12000 = 158793.12

Hence, MIRR = (158793.12/40000)^1/8 - 1 = 1.1881 - 1 = 1.1881 = 18.81%