Quiz Note: It is recommended that you save your response as you complete each qu

Question

Quiz Note: It is recommended that you save your response as you complete each question. Question 1 (1 point) What is the MIRR for on an investment of $1500 that has a salvage value of $500 in the fourth year. The investment yields $600 each of the 4 years. Assume the investing rate is 10% and the financing rate is 4%? O 15% 29% 3196 O 22% Save Question 2 (1 point) What is the MIRR for a project that has an initial investment of $1,000,000. The project makes $3,000,000 the first year. The second year the project is stopped and it costs $1,000,000 to remove the equipment. Assume the investing rate is 10% and the financing rate is 4%. 31% 15% O 29% 2290 Save

Explanation / Answer

Q1) 22%

Solution:  MIRR = ( FVCF/ PVCF) ^ ( 1 / n ) -1

Where FVCF is the Future Value of positive Cash Flows at investing rate and PVCF is the Present Value of negative Cash Flows at the financing rate

FVCF = 600*(1+0.1)^3 + 600*(1+0.1)^2 + 600*(1+0.1)^1 + (600+500)*(1+0.1)^0 = 3285

PVCF = 1500/(1+0.04)^0 = 1500

MIRR = (3285/1500)^(1/4) - 1 = 22%

Q2) 31%

Solution:  

FVCF = 3*(1+0.1)^1 = 3.3 m

PVCF = 1/(1+0.04)^0 + 1/(1+0.04)^2 = 1.9246

MIRR = (3.3/1.9246)^(1/2) - 1 = 31%

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