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Home & More is considering a project with cash flows of -$375,000, $133,500, -$35,600, $244,700, and...

Home & More is considering a project with cash flows of -$375,000, $133,500, -$35,600, $244,700, and $271,000 for years 0 to 4. Should this project be accepted based on the combination approach to the modified internal rate of return if both the discount rate and the reinvestment rate are 16 percent? Why or why not?

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Answer #1

The formulas and the inputs used in MS-EXCEL is as follows:
Cash flows 1 Year -375000 133500 35600 244700 271000 7 Discount rate 0.16 Modified internal MIRR(B2:B6,B7,B7) 8 rate of retur

The result is as follows:

1 Year Cash flows -$375,000 $133,500 -$35,600 0 4 $244,700 $271,000 4 6 7 Discount rate 16.00% Modified internal rate 8 of re

The MIRR is 17.42%, which is higher than the discount rate of 16%.

Conclusion: As the MIRR is higher than the discount rate, the project should be accepted.

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