Suppose your firm is considering investing in a project with the cash flows show
ID: 2795295 • Letter: S
Question
Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 9 percent, and that the maximum allowable payback and discounted payback statistics for the project are 3.5 and 4.5 years, respectively. Time Cash flow 01 2 3 4 5 -$15,300 $3,100 $4,300 $3,500 $3,500 S3,300 $3,100 Use the MIRR decision rule to evaluate this project. (Do not round intermediate calculations. Round your final answer to 2 decimal places.) MIRR Should it be accepted or rejected? Accepted RejectedExplanation / Answer
MIRR is 9.40%
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MIRR is improved version of IRR, While calculating MIRR it is assumed that cash inflow resulting from the asset or project will not be kept idle however it will be invested further to generate more return
MIRR could be calculated using formula, however it is much easier to use excel.
Year
Cash Inflow
0
-15300
1
3100
2
4300
3
3500
4
3500
5
3300
6
3100
MIRR
9.40%
Formula
=MIRR(AL16:AL26,H2,H2)
MIR is more than required rate of return 9%, so the project should be accepted.
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Hope this answer your query.
Feel free to comment if you need further assistance. J
Year
Cash Inflow
0
-15300
1
3100
2
4300
3
3500
4
3500
5
3300
6
3100
MIRR
9.40%
Formula
=MIRR(AL16:AL26,H2,H2)
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