MIRR A firm is considering two mutually exclusive projects, X and Y, with the fo
ID: 2792644 • Letter: M
Question
MIRR
A firm is considering two mutually exclusive projects, X and Y, with the following cash flows:
The projects are equally risky, and their WACC is 10%. What is the MIRR of the project that maximizes shareholder value? Round your answer to two decimal places. Do not round your intermediate calculations.
%
MIRR
A firm is considering two mutually exclusive projects, X and Y, with the following cash flows:
0 1 2 3 4 Project X -$1,000 $100 $280 $400 $750 Project Y -$1,000 $900 $110 $55 $55The projects are equally risky, and their WACC is 10%. What is the MIRR of the project that maximizes shareholder value? Round your answer to two decimal places. Do not round your intermediate calculations.
%
Explanation / Answer
MIRR = {[(Future value of cash inflows)/(PV of initial outflow)]^(1/n)} -1 Project X Project Y Future value of Cash inflows - Year 1 Cash Flow x (1.1)^3 133.1 1197.9 2 Cash Flow x (1.1)^2 338.8 133.1 3 Cash Flow x (1.1)^1 440 60.5 4 Cash Flow x (1.1)^0 750 55 Terminal value (TV) 1661.9 1446.5 PV of cash outflow 1000 1000 TV/PV 1.6619 1.4465 Tv/pv ^(1/4) 1.135406 1.096679 Less: 1 -1 -1 MIRR 0.135406 0.096679 Or MIRR 13.54% 9.67% NPV of Projects Project X Project Y PV of cash inflows Year 1 Cash Flow x 1/(1.1)^1 90.90909 818.1818 2 Cash Flow x 1/(1.1)^2 231.405 90.90909 3 Cash Flow x 1/(1.1)^3 300.5259 41.32231 4 Cash Flow x 1/(1.1)^4 512.2601 37.56574 PV of cash inflows 1135.1 987.979 Less: PV of cash outflow 1000 1000 NPV 135.1001 -12.021 Project X should be selected as it has higher MIRR as well as higher NPV Please provide feedback… Thanks in Advance :-)
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