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Homework answers / question archive / Project costs $55,000, its expected cash intlows are $13,000 per year for 8 years, and its WACC is 13%
Project costs $55,000, its expected cash intlows are $13,000 per year for 8 years, and its WACC is 13%. What is the project's MIRR? Do not round intermediate calculations. Round your answer to two decimal places
| CF | |||||||||
| Combination approach | |||||||||
| All negative cash flows are discounted back to the present and all positive cash flows are compounded out to the end of the project’s life | |||||||||
| Thus year 8 modified cash flow=(30583.87)+(27065.37)+(23951.66)+(21196.16)+(18757.66)+(16599.7)+(14690)+(13000) | |||||||||
| =165844.42 | |||||||||
| Thus year 0 modified cash flow=-55000 | |||||||||
| =-55000 | |||||||||
| Discount rate | 0.13 | ||||||||
| Year | 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 |
| Cash flow stream | -55000 | 13000 | 13000 | 13000 | 13000 | 13000 | 13000 | 13000 | 13000 |
| Discount factor | 1 | 1.13 | 1.2769 | 1.442897 | 1.6304736 | 1.842435 | 2.081952 | 2.352605 | 2.658444 |
| Compound factor | 1 | 2.352605 | 2.081952 | 1.842435 | 1.6304736 | 1.442897 | 1.2769 | 1.13 | 1 |
| Discounted cash flows | -55000 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Compounded cash flows | 0 | 30583.87 | 27065.37 | 23951.66 | 21196.16 | 18757.66 | 16599.7 | 14690 | 13000 |
| Modified cash flow | -55000 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 165844.4 |
| Discounting factor (using MIRR) | 1 | 1.147935 | 1.317755 | 1.512697 | 1.7364772 | 1.993363 | 2.288251 | 2.626763 | 3.015353 |
| Discounted cash flows | -55000 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 55000 |
| NPV = Sum of discounted cash flows | |||||||||
| NPV= | 6.18435E-07 | ||||||||
| MIRR is the rate at which NPV = 0 | |||||||||
| MIRR= | 14.79% | ||||||||
| Where | |||||||||
| Discounting factor = | (1 + discount rate)^(Corresponding period in years) | ||||||||
| Discounted Cashflow= | Cash flow stream/discounting factor | ||||||||
| Compounding factor = | (1 + reinvestment rate)^(time of last CF-Corresponding period in years) |
