Project costs $55,000, its expected cash intlows are $13,000 per year for 8 years, and its WACC is 13%. What is the

Question

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

Help In Homework · Accepted Answer

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)

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Project costs $55,000, its expected cash intlows are $13,000 per year for 8 years, and its WACC is 13%

Expert Solution

Archived Solution

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)