Question

Edelman Electric Systems is considering a project that has the following cash flow and WACC data. What is the project’s MIRR? Note that a project’s projected MIRR can be less than the WACC (and even negative), in which case it will be rejected.

WACC:	10.00%
Year:	0	1	2	3
Cash flows:	–$800	$350	$350	$350

a. 11.82%

b. 9.58%

c. 10.64%

d. 13.14%

Answer 1

Future value of cash flows = Annuity * [(1 + r)n - 1] / r

Future value of cash flows = 350 * [(1 + 0.1)3 - 1] / 0.1

Future value of cash flows = 350 * [1.331 - 1] / 0.1

Future value of cash flows = 350 * 3.31

Future value of cash flows = $1,158.5

MIRR = (Future value / initial investment)1/n - 1

MIRR = (1,158.5 / 800)1/3 - 1

MIRR = (1.4481251/3 - 1

MIRR = 1.1314 - 1

MIRR = 0.1314 or 13.14%