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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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  1. 21 June, 13:25
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    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).
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