Question

Ingram Electric Products is considering a project that has the following cash flow and WACC data. What is the project's MIRR? Note that a project's projected MIRR can be less than the WACC (and even negative), in which case it will be rejected.
WACC: 11.00%

Year 0 1 2 3

Cash flows -$800 $350 $350 $350

Answer 1

Answer:

the project's MIRR is 13.50 %.

Explanation:

MODIFIED INTERNAL RATE OF RETURN (MIRR)

-It is the rate that causes the Present Value of the Terminal Value (Future Cash flows at the end of the Project) to equal Present Value of Cash outflows.

-MIRR assumes a reinvestment rate at the end of the project

The First Step is to Calculate the Terminal Value at end of year 3.

Terminal Value (FV) = Sum of (PV x (1 + r) ^ 3 - n)

                                 = $350 x (1.11) ^ 2 + $350 x (1.11) ^ 1 + $350 x (1.11) ^ 0

                                 = $431.24 + $388.50 + $350.00

                                 = $1,169.74

The Next Step is to Calculate the MIRR using a Financial Calculator :

(-$800)        CFj

0          CFj

0          CFj

$1,169.74  CFj

Shift IRR/Yr 113.50 %

Therefore, the MIRR is 13.50 %