Calculate the MIRR of the project using the discounting approach method. (Do not

Question

  

  

  

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))

  

  

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))

  

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))

  

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

Explanation / Answer

1)Calculate the MIRR of the project using the discounting approach method

Under discounting approach method all the Outflow or negative cash flow are discounted to the present at the required return and added to the initial cost.

So here we have Cash Outflow = -28200 -8600 /(1+11%)Power5 = -28200 -8600 /1.685= -33303.857

So the Rate at which the Outflow during the recovery period equals the above amount is the MIRR

33303.857 = 10400/ (1+x) + 13100 / (1+x)power 2 + 15000 / (1+x) power 3 + 12100 / (1+x) power 4

Solving the above equation we get the value of x as 18.43 % by Hit and Trail Method

2 )Calculate the MIRR of the project using the reinvestment approach method

In Reinvestment approach the future value of all cash except the initial cash flow assuming that the cash will be reinvested with taking the reinvestent rate into consideration- so we compound all cash flows (except initital) - here the first year will compound for four year and fourth one for 1 year as total period is 5 years

so 28200 = 52615.312 / (1+MIRR)Power 5

MIRR = 13.285%

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

This Method very similar to reinvestment method however we discount any negative cash flow - Here we Discount all outflows except initial & Compound all all cash inflows

So we should have 33303.681 = 61215.312 / (1+MIRR) Power 5

After Solving we have MIRR = 12.947%

n A 18.43% A/(1+18.43)power n 1 10,400 0.8929 8781.669953 2 13,100 0.7972 9340.257265 3 15,000 0.7118 9030.72408 4 12,100 0.6355 6151.208612 Total 33,303.86

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