Modified IRR 1 . find the present value of all negative cash flows, 2 . find the
ID: 2766883 • Letter: M
Question
Modified IRR
1. find the present value of all negative cash flows,
2. find the future value of all positive cash flows,
3. sum the two columns,
then find the interest rate that makes the future value equal to the present value given n.
Rule: If MIRR is equal to or larger than Cost of Capital accept the project.
T CF2
0 (80,000)
1 25,000
2 25,000
3 (10,000)
4 50,000
5 70,000
Explanation / Answer
To calculate MIRR, we need the Cost of capital, which is absent. hence we are using IRR instead.
Year Cash flow DF Discounted cah Flow (-) cash flow (+) cash flow 0 (80,000) 1.0000 (80,000) (80,000) 1 25,000 0.8189 20,470 20,470 2 25,000 0.6706 16,765 16,765 3 (10,000) 0.5492 (5,492) (5,492) 4 50,000 0.4497 22,480 22,480 5 70,000 0.3683 25,777 25,777 - (85,492) 85,492 IRR 22.11%Related Questions
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