Javier Corporation is considering a project with the following cash flows:
Time Cash Flow -
0-$13,000
112,000
28,000
37,000
4-1,500
The firm's cost of capital is 11 percent. What is the project's modified internal rate of return (MIRR)?
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A. B. C. D. E.C
First, find PV of all cash outflows:
PV of CF(0) is -$13,000. PV of CF(4) is -1,500 discounted at 11% for 4 periods or -$988.10. Thus, the PV of all cash outflows is -$13,988.10.
Second, find the FV at t = 4 of all cash inflows:
The sum of these cash inflows is the project's terminal value. FV of CF(1) at t = 4 is found by entering N = 3, I = 11, PV = -12,000, and PMT = 0. Then solve for FV
= $16,411.57. Similarly, the FVs at t = 4 of CF(2) and CF(3) are found to be $9,856.80 and $7,770.00, respectively. Thus, the projects TV = $16,411.57 +
$9,856.80 + $7,770.00 = $34,038.37.
To find the MIRR, enter N = 4, PV = -13,988.10, PMT = 0, and FV = 34,038.37, which yields I/YR = MIRR = 24.90%.