Question

MIRR- A project has an initial cost of $70,225, expected net cash inflows of $10,000 per year for seven years, and the cost of capital of 11%. What is the projects MIRR?

Answer 1

Project MIRR

The modified internal rate of return (MIRR) is a financial measure of an investment's attractiveness. It is used in capital budgeting to rank alternative investments of equal size. As the name implies, MIRR is a modification of the internal rate of return (IRR) and as such aims to resolve some problems with the IRR.

In the above case

MIRR=

outlay= terminal cash flow/(1+mirr)ⁿ

^{outlay(o)=70225}

^{terminal cash flow(P)=10000}

^{n=7 years}

= (70225/70000)=1/(1+mirr)ⁿ×1.11

mirr=5.865