Ask Question
15 July, 07:44

A project has a cost of $150,000 and is expected to provide after-tax annual cash flows of $100,000 for two years. The firm's management is uncomfortable with the IRR reinvestment assumption and prefers the modified IRR approach. You have calculated a cost of capital for the firm of 12 percent. What is the project's MIRR?

+1
Answers (1)
  1. 15 July, 08:22
    0
    6.15%

    Explanation:

    cash flow 0 = - 150,000

    cash flow 1 = 100,000

    cash flow 2 = 100,000

    r = 12%

    MIRR = ⁿ√ (FVCF / PVCF) - 1

    FVCF = future value of positive cash flows discounted at r. FVCF = (100,000 / 1.12) + (100,000 / 1.12²) = 89,285.71 + 79,719.39 = 169,005.1 PVCF = the present value of negative cash flows = - 150,000 n = number of periods = 2

    MIRR = √ (169,005.1 / - 150,000) - 1 = √-1.1267 - 1 = 1.0615 - 1 = 0.0615 or 6.15%
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “A project has a cost of $150,000 and is expected to provide after-tax annual cash flows of $100,000 for two years. The firm's management is ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers