O'Donnell Inc. has a cost of capital of 11.5 percent. The company has a project with the following cash flows:
Year Cash flow -
0-$200
1 235
2-65
3 300
What is the project's modified internal rate of return (MIRR)?
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A. B. C. D. E.D
Step 1 Find the PV of the outflows:
CF(0) = -200 -
CF(1) = 0 -
CF(2) = -65 -
I = 11.5 -
Solve for NPV = -$252.28.
Step 2 Find the TV of the inflows by first finding their NPV and then finding the FV of the NPV:
CF(0) = 0 N = 3 -
CF(1) = 235 I = 11.5 -
CF(2) = 0 PV = -427.18 -
CF(3) = 300 PMT = 0 -
I = 11.5 Solve for FV = $592.16.
Solve for NPV = $427.18.
Step 3 Calculate the MIRR by equating the PV of the outflows with the TV of the inflows:
N = 3 -
PV = -252.28 -
PMT = 0 -
FV = 592.16 -
Solve for I = 32.90%.