Question

Alyeska Salmon Inc., a large salmon canning firm operating out of Valdez, Alaska, has a new automated production line project it is considering. The project has a cost of $367,000 and is expected to provide after-tax annual cash flows of $86,300 for eight years. The firm's management is uncomfortable with the IRR reinvestment assumption and prefers the modified IRR approach. You have calculated a cost of capital for the firm of 12 percent. What is the project's MIRR? Use the percentage form without the % sign, and round it to one decimal place, e.g., 13.1.

Answer 1

Future value of annuity=Annuity[(1+rate)^time period-1]/rate

=86300[(1.12)^8-1]/0.12

=86300*12.29969314

=$1,061,463.518

MIRR=[Future value of annuity/Present value of outflows]^(1/time period)-1

=[$1,061,463.518/367000]^(1/8)-1

which is equal to

=14.2(Approx).