if you can show your work that would help, thank you! RAK Corp. is evaluating a

Question

if you can show your work that would help, thank you!

RAK Corp. is evaluating a project with the following cash flows Year Cash Flow 0 -$28,900 11,100 13,800 15,700 12,800 - 9,300 4 The company uses a discount rate of 13 percent and a reinvestment rate of 6 percent on all of its projects 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.) MIRR 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.) MIRR 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.) MIRR

Explanation / Answer

1. Discounting approach:In the discounting approach, we find the value of all negative cash outflows at Time 0, while any positive cash inflows remain at the time at which they occur.
Time 0 cash flow = –$28,900 – $9,300 / 1.135
Time 0 cash flow = –$33,947.67
So, the MIRR using the discounting approach is:
0 = –$33,947.67 + $11,300 / (1 + MIRR) + $13,800 / (1 + MIRR)2 + $15,700 / (1+ MIRR)3+ $12,800 / (1 + MIRR)4

Using IRR function, we get MIRR as 20.22%

2. In the reinvestment approach, we find the future value of all cash except the initial cash flow at the end of the project using the reinvestment rate.
Time 5 cash flow = $11,100(1.064) + $13,800(1.063) + $15,700(1.062) +$12,800(1.06) –$9,300
Time 5 cash flow = $52,358.04

So, the MIRR using the discounting approach is:0 = –$29,900 + $52,358.04/(1 + MIRR)5
MIRR = (52,358.04/29,900)0.2 - 1 = 12.62%

3. In the combination approach, we find the value of all cash outflows at time 0 using the discountrate, and the value of all cash inflows at the end of the project using the reinvestment rate.
Time 0 cash flow = –$33,947.67
Time 5 cash flow = $11,100(1.064) + $13,800(1.063) + $15,700(1.062) +$12,800(1.06)
Time 5 cash flow = $61,658.04

MIRR using the combination approach is: 0 = –$33,947.67 + $61,658.04/(1 + MIRR)5

MIRR = (61,658.04/33,947.67)0.2 - 1 = 12.68%

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