Project Cash Flows and MIRR Calculation: CFA Level 1 Exam Prep

MIRR Calculation for a Project with Cash Flows and Initial Outlay

Prev Question Next Question

Question

A project has the following cash flows over the next 5 years: $1,000, $600, $300, $1,200 and $1,400. Assume all cash flows occur at the end of a year. The project requires an initial cash outlay of $2,900. The project's cost of capital is 8%. The MIRR of the project equals ________.

Answers

Explanations

Click on the arrows to vote for the correct answer

A. B. C. D.

B

The MIRR is defined as that rate which discounts the terminal value of the cash inflows to equate to the present value of a project's costs (using the project's cost of capital). The present value of the costs = 2,900. The terminal value (future value at the end of year 5) of the project equals 1,000*1.084 + 600*1.083 +

300*1.082 + 1,200*1.08 + 1,400 = 5,162. Note that this is calculated using the project's cost of capital. Then, MIRR satisfies 2,900 = 5,162/(1+MIrr)5. Solving gives

MIRR = 12.22%.

Prev Question Next Question