Fundamentals of Financial Manageme...
Solutions
Fundamentals of Financial Manageme...
MIRR A project has the following cash flows:
This project requires two outflows at Years 0 and 2, but the remaining cash flows are positive. Its WACC is 10%, and its MIRR is 14.14%. What is the Year 2 cash outflow?
To compute: The Year 2 cash outflow.
Introduction:
Modified Internal Rate of Return (MIRR): It refers to the rate of return that is computed by the company to make a decision of selection and ranking of a project for investment. This is a modified version of IRR with reinvestment of cash flows at the cost of capital.
Given information:
Initial investment of project is $500.
Cash inflow at the end of year 1 is $202.
Cash inflow at the end of year 3 is $196.
Cash inflow at the end of year 4 is $350.
Cash flow at the end of year 5 is $451.
WACC of the project is 10%.
MIRR of the project is 14.14%.
Terminal value is $1,369 (working note).
The formula to calculate MIRR is,
Where,
- N is the number of years.
Substitute $1,369 for terminal value, 14.14% for MIRR,
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