Question

Doak Corp. is evaluating a project with the following cash flows: Year Cash Flow -$15,100 6,200 7,400 7,000 5,800 -3,200 1 2 3 5 The company uses an interest rate of 11 percent on all of its projects. Calculate the MIRR of the project using all three methods. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) Discounting approach Reinvestment approach Combination approach %

Answer 1

B D А 8 Discounting approach: 10 Negative cash flow to present value = $1,899.04 12 total time 0 outflow = -$16,999.04 [-15100-1899.04 ] 0 Cash flows -$16,999.04 $6,200.00 $7,400.00 $7,000.00 $5,800.00 $0.00 20.48% IRR(C14:C19) MIRR =

А в Reinvestment approach: future value of cash flows at reinvestment approach: Year cash flows future value factor future value 1 $6,200.00 1.51807041 $9,412.04 2 $7,400.00 1.367631 $10,120.47 $7,000.00 1.2321 $8,624.70 $5,800.00 1.11 $6,438.00 5 -$3,200.00 -$3,200.00 $31,395.21 0 = - 15100+31395.21/(1+MIRR)^5 (1+MIRR)^5 = 2.07915271 MIRR = 15.77%

А D 35 Combination approach: cash outflows at discount rate, inflows at reinvestment rate time 0 cash flow = $16,999.04 Year cash flows future value factor future value 1 $6,200.00 1.51807041 $9,412.04 2 $7,400.00 1.367631 $10,120.47 3 $7,000.00 1.2321 $8,624.70 $5,800.00 1.11 $6,438.00 5 $0.00 $0.00 Time 5 cash flow $34,595.21 0 = (1+MIRR)^5 = MIRR = -16999.04 + 34595.21/(1+MIRR)^5 2.03512653 15.27%