For the nonconventional net cash flow series shown, the external rate of return per year using the MIRR method, with an investment rate of 20% per year and a borrowing rate of 8% per year, is closest to: Year NCF, $ 0 -40,000 1 +13,469 2 -29,000 3 +25,000 4 +50,966

Ans

Reinvestment rate r = 20% or 0.2 , its is use in Future value calculation

Borrowing rate i = 8% or 0.08 , it is use in present value calculation.

Year n = 4 years

Future value calculations are cash flow calculate from end to beginning of positive values.

FV = 13469(1+0.2)³ + 25000(1+0.2) + 50966 = 104240.43

Present value of negative cash flow.

PV = 40000 + 29000/(1+0.08)² = 64862.83

External rate of returns = (FV/PV)^1/4 - 1

External rate of returns = (104240.43/64862.83)^1/4 - 1

External rate of returns = 1.12592659 - 1

External rate of returns = 0.12592659 or 12.592%