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

Question

RAK Corp. is evaluating a project with the following cash flows: Year Cash Flow 0 -$28,300 10,500 13,200 15,100 12,200 -8,700 2 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

a)

Time 0 cash flow = -28300 - (8700 / 1.135)

Time 0 cash flow = -33022.01

So, the MIRR using the discounting approach is:

0 = -33022.01 + 10500 / (1 + MIRR) + 13200 / (1 + MIRR)2 + 15100 / (1 + MIRR)3 + 12200 / (1 + MIRR)4

MIRR = 19.25%

b)

Time 5 cash flow = 10500*(1 + 6%)4 + 13200 *(1 + 6%)3 + 15100*(1 + 6%)2 + 12200 *(1 + 6%) - 8700

Time 5 cash flow = 50175.78

0 = -28300 + 50175.78 / (1 + MIRR)5

50175.78 / 28300 = (1 + MIRR)5

MIRR = (50175.78/ 28300)1/5 - 1

MIRR = 12.14%

c)

Time 0 cash flow = -28300 - (8700 / 1.135)

Time 0 cash flow = -33022.01

Time 5 cash flow = 10500*(1 + 6%)4 + 13200 *(1 + 6%)3 + 15100*(1 + 6%)2 + 12200 *(1 + 6%)

Time 5 cash flow = 58875.78

0 = -33022.01 + 58875.78 / (1 + MIRR)5

58875.78 / 33022.01 = (1 + MIRR)5

MIRR = (58875.78 / 33022.01)1/5 - 1

MIRR = 12.26%

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