Question

Mittuch Corp. is evaluating a project with the following cash flows. The company uses a discount rate of 10 percent and a reinvestment rate of 7 percent on all of its projects.

Year	Cash Flow
0		–$	15,900
1			7,000
2			8,200
3			7,800
4			6,600
5			–4,000

Calculate the MIRR of the project using all three methods with these interest rates. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

	MIRR
Discounting approach	%
Reinvestment approach	%
Combination approach	%

Answer 1

A C D E 7 8 Discounting approach: 9 -$2,851.94 10 Negative cash flow to present value = 11 -$18,751.94 12 total time 0 outflow [-15900-2851.94] Cash flows 13 Year -$18,751.94 14 0 $7,000.00 $8,200.00 15 1 16 2. $7,800.00 17 3 $6,600.00 18 4 $0.00 19 5 21.33% 20 MIRR IRR(C14:C19) 21

A 22 Reinvestment approach: future value of cash flows at reinvestment approach: 23 cash flows future value factor future value 24 Year $7,000.00 $8,200.00 $9,175.57 25 1 1.31079601 $10,045.35 26 2. 1,225043 $7,800.00 $6,600.00 $8,930.22 $7,062.00 27 3 1.1449 28 4. 1.07 -$4,000.00 -$4,000.00 29 5 1 $31,213.14 30 -15900+31213.14/(1+MIRR)^5 0 = 31 (1+MIRR)A5 32 1,96309086 MIRR = 14.44% 33 24 LLI

A C D 34 35 Combination approach: cash outflows at discount rate, inflows at reinvestment rate 36 37 -$18,751.94 cash flows future value factor future value time 0 cash flow 38 39 Year $7,000.00 $9,175.57 $10,045.35 40 1 1.31079601 $8,200.00 41 2 1.225043 $7,800.00 $6,600.00 $0.00 $8,930.22 42 1.1449 $7,062.00 $0.00 43 4. 1.07 44 5 1 $35,213.14 Time 5 cash flow 45 46 -18751.94 35213.1/(1+MIRR)^5 0 = 47 |(1+MIRR)^5 = 48 1.87783962 49 MIRR 13.43% 50