Question

Find the MIRR for a project that requires $350,000 investment now and an additional $60,000 investment at year 10, has net positive cash flows of $55,000 per year for 20 years as well as a $70,000 salvage value at year 20. Use a financing rate of 8% and an investment rate of 12%. Answer: 12.72%

Answer 1

Year NOTE: 3 11 Cash Flows $350,000 $55,000 $55,000 $55,000 $55,000 $55,000 $55,000 $55,000 $55,000 $55,000 $5,000 ($55,000 - $60,000] $55,000 $55,000 $55,000 $55,000 $55,000 $55,000 $55,000 $55,000 $55,000 $125,000 ($55,000 + $70,000] 12.72% [Ref: NOTE] When cash flows are insert in an Excel file in cell numbers B2 thru B22, MIRR in cell number B23 can be calculated using EXCEL function: MIRR(values, finance_rate,reinvest_rate) where, values = B2:B22; finance_rate=8%; reinvest_rate=12%. MIRR assumes that the cash flows are reinvested in the project at cost of capital associated with the project. MIRR stands for Modified Internal Rate of Return which is an advanced project evaluation version of IRR (Internal Rate of Return) to consider even borrowing rate and reinvestment rate in the calculation. Higher the MIRR, higher the acceptability of a project. That is, project shall be accepted if MIRR is greater than the cost of capital associated with the project. EXCEL SCREENSHOT: А B C D 1 Year Cash Flows 2 0 $350,000 $55,000 4. 2 $55,000 5 3 $55,000 6 4 $55,000 75 $55,000 8 6 $55,000 97 $55,000 10 8 $55,000 11 9 $55,000 12 10 =55000-60000 [$55,000 - $60,000] 13 11 $55,000 14 12 $55,000 $55,000 16 14 $55,000 17 15 $55,000 18 16 $55,000 19 17 $55,000 20 18 $55,000 21 19 $55,000 22 20 =55000+70000 [$55,000 + $ 70,000] 23 MIRR =MIRR(B2:B22,8%,12%) [Ref: NOTE] 20 MIRR