Yellow Day has a project with the following cash flows: Year Cash Flows 0 −$25,900 1...
Yellow Day has a project with the following cash
flows:
| Year | Cash Flows | |
| 0 | −$25,900 | |
| 1 | 10,000 | |
| 2 | 15,900 | |
| 3 | 9,060 | |
| 4 | −3,050 | |
What is the MIRR for this project using the reinvestment approach?
The interest rate is 8 percent
Homework Answers
When reinvestment approach is assumed, MIRR is based on reinvestment at a specified rate. MIRR is modified version of IRR. SO, the rate to calculate is based on same approach to calculate IRR.
|
Year |
Cash flows |
Reinvested cash flows |
||
|
0 |
-25900 |
|||
|
1 |
10000 |
1.08^3 |
1.259712 |
12597.12 |
|
2 |
15900 |
1.08^2 |
1.1664 |
18545.76 |
|
3 |
9060 |
1.08^1 |
1.08 |
9784.8 |
|
4 |
-3050 |
1.08^0 |
1 |
-3050 |
|
total |
37877.68 |
MIRR = [(37877.68/25900)^(1/4)] -1 = 9.9692%
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