RAK Corp. is evaluating a project with the following cash flows: Calculate the M

Question

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

  

  

  

Calculate the MIRR of the project using the discounting approach. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

  

  

Calculate the MIRR of the project using the reinvestment approach. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

  

Calculate the MIRR of the project using the combination approach. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

  

Year Cash Flow 0 –$ 28,100 1 10,300 2 13,000 3 14,900 4 12,000 5 – 8,500

Explanation / Answer

1. Computation of IRR using discount approach

Years Cashinflows Discount@12% Present value of cash flows

1 10300 0.893 9197.9

2 13000 0.797 10361

3 14900 0.712 10608.8

4 12000 0.636 7632

5 (8500) 0.567 (4819.5)

Total value of cash inflows 32980.2

less : initial investment (28100)

NPV 4880.2

2. Computation of IRR using Reinvestment approach

Years Cash inflows Reinvestment @7% Present value cash inflows

1 10300 0.935 9630.5

2 13000 0.873 11349

3 14900 0.816 12158.4

4 12000 0.763 9156

5 (8500) 0.713 (6060.5)

Total cash inflows 36233.4

less: initial imbvestment (28100)

NPV 8133.4

3. Using Combination approach Discount approach is better.

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