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

Question

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.)

Explanation / Answer

CF0 = -29,300

CF1 = 11,500

CF2 = 14,200

CF3 = 16,100

CF4 = 13,200

CF5 = -9,700

Time 0 Cash Flow = -29,300 - 9,700/ (1.11)5

Time 0 Cash Flow = -35,056.48

MIRR using discount approach:

0 = -35,056.48 + 11,500/ (1 + r) + 14,200/ (1 + r)2 + 16,100/ (1 + r)3 + 13,200/ / (1 + r)4

r = 20.10%

Part B: Reinvestment Approach

CF0 = -29,300

CF1 = 11,500

CF2 = 14,200

CF3 = 16,100

CF4 = 13,200

CF5 = -9,700

Time 5 Cash Flow = 11,500 * (1.08)4 + 14,200 * (1.08)3 + 16,100 * (1.08)2 + 13,200 * (1.08) - 9,700

Time 5 Cash Flow = 56,868.57

MIRR using reinvestment approach:

0 = -29,300 + 56,868.57/ (1 + r)5

r = 14.18%

Part C

Combination approach: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. So,the value of the cash flows is:

Time 0 Cash Flow = -29,300 - 9,700/ (1.11)5

Time 0 Cash Flow = -35,056.48

Time 5 Cash Flow = 11,500 * (1.08)4 + 14,200 * (1.08)3 + 16,100 * (1.08)2 + 13,200 * (1.08) - 9,700

Time 5 Cash Flow = 66,568.57

0 = -35,056.48 + 66,568.57/ (1 + r)5

r = 13.68%

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