Computer Consultants Inc. is considering a project that has the following cash flow and cost of capital (r) data. What is the project's MIRR? Note that a project's MIRR can be less than the cost of capital (and even negative), in which case it will be rejected. r = 10.00%Year 0 1 2 3Cash flows - $1,000 $450 $450 $450a. 9.32%b. 10.35%c. 11.50%d. 12.78%e. 14.20%

Question

Franco Spears

Business

21 June, 13:19

Computer Consultants Inc. is considering a project that has the following cash flow and cost of capital (r) data. What is the project's MIRR? Note that a project's MIRR can be less than the cost of capital (and even negative), in which case it will be rejected. r = 10.00%Year 0 1 2 3Cash flows - $1,000 $450 $450 $450a. 9.32%b. 10.35%c. 11.50%d. 12.78%e. 14.20%

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Malakai · Answer 1

e. 14.20%

Explanation:

We use the formula:

A=P (1+r/100) ^n

where

A=future value

P=present value

r=rate of interest

n=time period.

Hence

A=$450 (1.1) ^2+$450 (1.1) ^1+$450

=$450[ (1.1) ^2 + (1.1) + 1]

=$1489.50

Hence

MIRR=[Future value of inflows/Present value of outflows]^ (1/time period) - 1

=[1489.5/1000]^ (1/3) - 1

=14.20% (Approx) (E).