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Project L costs $75,000, its expected cash inflows are $9,000 per year for 8 years, and...

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Finance

Project L costs $75,000, its expected cash inflows are $9,000per year for 8 years, and its WACC is 13%. What is the project'sMIRR? Do not round intermediate calculations. Round your answer totwo decimal places.

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3.7 Ratings (514 Votes)

Reinvestment Approach
All cash flows except the first are compounded to the last time period and IRR is calculated
Thus year 8 modified cash flow=(21173.45)+(18737.57)+(16581.92)+(14674.26)+(12986.07)+(11492.1)+(10170)+(9000)
=114815.37
Discount rate 13.000%
Year 0 1 2 3 4 5 6 7 8
Cash flow stream -75000.000 9000.000 9000.000 9000.000 9000.000 9000.000 9000.000 9000.000 9000.000
Compound factor 1.000 2.353 2.082 1.842 1.630 1.443 1.277 1.130 1.000
Compounded cash flows -75000.000 21173.45 18737.57 16581.92 14674.26 12986.07 11492.1 10170 9000
Modified cash flow -75000.000 0 0 0 0 0 0 0 114815.370
Discounting factor (using MIRR) 1.000 1.055 1.112 1.173 1.237 1.305 1.376 1.452 1.531
Discounted cash flows -75000.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 75000.000
NPV = Sum of discounted cash flows
NPV Discount rate = 0.00
MIRR is the rate at which NPV = 0
MIRR= 5.47%
Where
Compounding factor = (1 + reinvestment rate)^(time of last CF-Corresponding period in years)
compounded Cashflow= Cash flow stream*compounding factor

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Transcribed Image Text

Project L costs $75,000, its expected cash inflows are $9,000per year for 8 years, and its WACC is 13%. What is the project'sMIRR? Do not round intermediate calculations. Round your answer totwo decimal places.

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