Chamberlain Corp. is evaluating a project with the following cash flows. The com

Question

Chamberlain Corp. is evaluating a project with the following cash flows. The company uses a discount rate of 11 percent and a reinvestment rate of 8 percent on all of its projects.

Calculate the MIRR of the project using all three methods using these interest rates. (Do not round intermediate calculations. Enter your answers as a percentage rounded to 2 decimal places (e.g., 32.16).)

Year Cash Flow 0 –$ 15,500 1 6,600 2 7,800 3 7,400 4 6,200 5 – 3,600 Required:

Calculate the MIRR of the project using all three methods using these interest rates. (Do not round intermediate calculations. Enter your answers as a percentage rounded to 2 decimal places (e.g., 32.16).)

MIRR   Discounting approach %   Reinvestment approach %   Combination approach %

Explanation / Answer

a)Discounting approach:
Here all the project cash outflow are discounted at discoutn rate. Let the mIRR of the project b "x" then

Cash outflow=-15,500-3600/1.11^5
=-$17,636.42
17,636.42= [6600/(1+x)^1]+[7800/(1+x)^2]+[7400/(1+x)^3]+[6200/(1+x)^4]

solving for x we get 21.65%

b)Reinvestment Approach:

All the cash flows except the initial outflow future value is calculated using the reinvestment rate.

Cash flow at end of 5
=(6600*1.08^4)+(7800*1.08^3)+(7400*1.08^2)+(6200*1.08^1)+(-3600*1.08^0)
=$30,532.34

0=-15,500+30532.3/(1+x)^5
solving for x we get 12.68%

c)combining

Cash outflow at time 0=-15,500-3600/1.11^5
=-$17,636.42

cash flow at time5

=(6600*1.08^4)+(7800*1.08^3)+(7400*1.08^2)+(6200*1.08^1)=$34,132.34

MIRR using discounting approach
17735.32=34132.34/(1+x)^5

solving for x we get 14.12%

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