A project has an initial cost of $48,900 and cash flows of $31,300, –$11,600, and $40,300 for Years 1 to 3, respectively

Finance Nov 27, 2020

A project has an initial cost of $48,900 and cash flows of $31,300, –$11,600, and $40,300 for Years 1 to 3, respectively. The discount rate is 14 percent. What is the modified IRR?

Expert Solution

Future value of all cash inflows
Year	CF	FVF @14%	FV
1	31300	1.2996	40677.48
2	0	1.14	0
3	40300	1	40300
		Terminal Value	80977.48

Present value of Cash outflows
Year	CF	PVF @ 14%	PV
0	48900	1	48900
2	11600	0.769467528	8925.82333
		Present Value	57825.8233

MIRR is a rate at which present value of terminal cashflow is equals to present value of outflow.

therefore ,

57825.8233 = 80977.48 /(1+r)³

(1+r)³ = 80977.48 /57825.8233

r = 11.88%

Therefore MIRR = 11.88%

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