Question

A firm is considering two mutually exclusive projects, X and Y, with the following cash flows: 0 1 3 4 $1,000 $300 Project X $100 $370 $700 Project Y -$1,000 $100 $1,100 $50 $45 The projects are equally risky, and their WACC is 12%. What is the MIRR of the project that maximizes shareholder value? Do not round intermediate calculations. Round your answer to two decimal places.

Answer 1

The project that has maximum NPV, adds maximum value to the shareholders. NPV is higher for Project Y (or B) and hence the answer is 15.37%

A Year 1 2 0 B Cash Flow (A) Cash Flow (B) -1000 -1000 100 1100 300 50 700 100 370 13 11 WACC 12 NPV 13 MIRR 14 12% 36.67 13.01% -07 126.05 15.37% 15

B 1 Year Cash Flow (A) -1000 100 Cash Flow (B) -1000 1100 100 300 370 50 700 45 WACC 12 NPV MIRR 0.12 =NPV($B$11,B3:B6)+B2 =MIRR(B2:B6, $B$11,$B$11) =NPV($B$11,C3:C6)+C2 =MIRR(C2:C6,$B$11,$B$11) 15