Question

Find the modified internal rate of return (MIRR) for the following series of future cash flows if the company is able to reinvest cash flows received from the project at an annual rate of 12.88 percent.The initial outlay is $435,100. Year 1: $129,400 Year 2: $172,800 Year 3: $178,800 Year 4: $120,500 Year 5: $160,900

Round the answer to two decimal places in percentage form.

Answer 1

We use the formula:
A=P(1+r/100)^n
where
A=future value
P=present value
r=rate of interest
n=time period.

Future value of inflows=129,400*(1.1288)^4+172,800*(1.1288)^3+178,800*(1.1288)^2+120,500*(1.1288)+160900

=983373.082

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

=[983373.082/435100]^(1/5)-1

=17.71%(Approx).