A $1,000 six-year bond has an 8 percent coupon, is selling at par, and contracts to make annual payments of interest. The durati
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Answer: MIRR (project x ) = 3.42% , Project Y = 4.51%
Explanation:
Modified internal Rate of return
Project X
Period (n) = 4
Weighted Average Cost of equity(WACC) = 8.0%
Cash out flow = -$1000
Cash Inflows = $100 year 1 , $280 year 2 , 370 year 3 ,$700 year 4
Present Value Cash Inflows = PVCIF = Cash Inflow/(1+WACC)^n
PVCIF = 100/(1+0.08)^1 + 280/(1+0.08)^2 + 370/(1+0.08)^3 + $700/(1+0.08)^4
PVCIF = 95.592592593 + 240.05486968 + 293.71792918 + 514.5208969
Present Value of Cash inflows (PVCIF) = $1143.8862884
Present Value of Cash out flows(PVCOF) = -$1000
Modified Internal Rate of Return (MIRR) =
Modified Internal Rate of Return (MIRR) =
Modified Internal Rate of Return (MIRR) = 0.034178971
Modified Internal Rate of Return (MIRR) = 3.41789971 = 3.42%
Project Y
Period (n) = 4
Weighted Average Cost of equity(WACC) = 8.0%
Cash out flow = -$1000
Cash Inflows = $1100 year 1 , $110 year 2 , $50 year 3 ,$55 year 4
Present Value Cash Inflows = PVCIF = Cash Inflow/(1+WACC)^n
PVCIF = $1100/(1+0.08)^1 + $110/(1+0.08)^2 + $50/(1+0.08)^3 + $55/(1+0.08)^4
PVCIF = 1018.5185185 + 94.307270233 + 39.691612051 + 40.42641904
Present Value of Cash inflows (PVCIF) = $10192.9438198
Present Value of Cash out flows(PVCOF) = -$1000
Modified Internal Rate of Return (MIRR) =
Modified Internal Rate of Return (MIRR) =
Modified Internal Rate of Return (MIRR) = 0.0450931421
Modified Internal Rate of Return (MIRR) = = 4.50931421 = 4.51%