Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 13 percent, and that the maximum allowable payback and discounted payback statistics for your company are 3 and 3.5 years, respectively. Time:012345Cash flow:−$240,000$64,800$83,000$139,000$121,000$80,200Use the MIRR decision rule to evaluate this project. (Do not round intermediate calculations and round your final answer to 2 decimal places.)MIRR: ____.__%

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Asked Nov 20, 2019
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Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 13 percent, and that the maximum allowable payback and discounted payback statistics for your company are 3 and 3.5 years, respectively.
 

Time: 0 1 2 3 4 5
Cash flow: −$240,000 $64,800 $83,000 $139,000 $121,000 $80,200


Use the MIRR decision rule to evaluate this project. (Do not round intermediate calculations and round your final answer to 2 decimal places.)

MIRR: ____.__%

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Expert Answer

Step 1

The table below shows the future value of cash flows for each year.

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Future value Year cash flow Accumulation factor (5-Year) (1+11% Year $64,800 $83,000 $139,000 $121,000 $80,200 Total sum $98,370.96 $113,513.37 $171,261.9 $134,310 $80,200 $597,656.23 1.518070 1.36731 1.2321 1. 2 4 1.11 5 1

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Step 2

The formula to calculate the MIRR is given below:

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Future value of positive cash flows -1 MIRR Initial investment Here, MIRR is modified internal rate of return n is the number of years

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Step 3

Substitute $597,656.23 for future value of positive cash flows...

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$597,656.23 MIRR = $240, 000 - /2.490 - 1.20018- 0.20018 or 20.02%

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