Year Proj. X Proj. Y 0 -10,000 -10,000 1 6,500 3,500 2 3,000 3,500 3 3,000 3,500

ID: 2807800 • Letter: Y

Question

Year Proj. X Proj. Y

0 -10,000 -10,000

1 6,500 3,500

2 3,000 3,500

3 3,000 3,500

4 1,000 3,500

Cost of Capital = 12% for both projects.

1) Obtain each project's MIRR, begin by finding each project's terminal value (TV) of cash inflows:

TVx = $6,500 (1.12)^3 + $________+ $ ________+ $1,000 = $_________

TVy = $____________ + $________+ $________ + $3,500 = $_________

2) Each project’s MIRR is the discount rate that equates PV of the TV to each project’s $10,000 cost:

MIRRx = __________%

MIRRy= __________%

TVx = 6500 x (1.12)^(3) + 3000 x (1.12)^(2) + 3000 x (1.12) ^(1) + 1000 = $ 17255.23

TVy = 3500 x (1.12)^(3) + 3500 x (1.12)^(2) + 3500 x (1.12)^(1) + 3500 = $ 16727.65

Let MIRRx be r(x) and MIRRy be r(y)

Therefore, 10000 = (17255.23) / (1+r(x))^(4) and 10000 = (16727.65) / (1+r(y))^(4)

Solving both equations r(x) = 14.61 % and r(y) = 13.72%

MIRRx = 14.61 % and MIRRy = 13.72%

NOTE: The two MIRR equations are solved using the EXCEL Goal Seek Fuction. The same can be done by using logarithms.

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