Slow Ride Corp. is evaluating a project with the following cash flows: Year Cash

Question

Slow Ride Corp. is evaluating a project with the following cash flows: Year Cash Flow 0 –$ 28,400 1 10,600 2 13,300 3 15,200 4 12,300 5 – 8,800 The company uses an interest rate of 8 percent on all of its projects. Calculate the MIRR of the project using the discounting approach method. (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) MIRR % Calculate the MIRR of the project using the reinvestment approach method. (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) MIRR % Calculate the MIRR of the project using the combination approach method. (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) MIRR %

Explanation / Answer

1.Calculation of the MIRR of the project using the discounting approach method.

By using Excel function we got MIRR of this cashflow is 13%.

2.Calculation  the MIRR of the project using the reinvestment approach method. Using excel function MIRR is 9%.

3 .Calculate the MIRR of the project using the combination approach method.

In the combination approach, we find the value of all cash outflows at time 0 using the discountrate, and the value of all cash inflows at the end of the project using the reinvestment rate. So,the value of the cash flows is

Time 0 cash flow = –$28,400 – $8800 / (1.08)5

Time 0 cash flow = –$34,389.13

Time 5 cash flow = $10,600(1.084) + $13,300(1.083) + $15,200(1.082) + $12300(1.08) = $62,188.63

So, the MIRR using the discounting approach is

0 = –$34,389.13 + $62,188.63 / (1 + MIRR)

(1 + MIRR) = $62,188.63/$34,389.13

MIRR =$62,188.63/$34,389.13-1

MIRR =0.8084 or 8.084%

Year Cashflow$ PVIF@8% Discounted cashflows 0     (28,400) 1       (28,400) 1      10,600 0.9259           9,815 2      13,300 0.8573         11,403 3      15,200 0.7938         12,066 4      12,300 0.7350           9,041 5       (8,800) 0.6806         (5,989)

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