Homework SourseIngram D Question 19 5 pts Ingram Electric is considering a
Ingram
D Question 19 5 pts Ingram Electric is considering a project with an initial cash outflow of $800,000. This project is expected to have cash inflows of $350,000 per year in years 1, 2, and 3, The company has a WACC of 8.65% which is used as its reinvestment rate. What is the project\'s modified internal rate of return (MIRR)? Your answer should be between 11.00 and 13.72, rounded to 2 decimal places, with no special characters. Question 20 5 pts Arrow Electronics is considering Projects S and L, which are mutually F4 F5 F6 FE Solution
MIRR is the rate at which present value of terminal value of cash inflows is equal to the Present value of cash outflows. The terminal value is the future value (FV) of cash inflows and is computed using WACC as the rate of investment. In simpler words, we are comparing one cash inflow (terminal value) with one cash outflow (Present value of outflows). So, first we need to compute one future value of cash inflows.
FV = Amount x (1 + r)n where r is the WACC and n being the no. of years remaining
Now, Present value of terminal value = Initial outflow
or, Terminal Value / (1 + MIRR)3 = $800,000
or, $1,143,443.7875 / (1 + MIRR)3 = $800,000
or, (1 + MIRR)3 = 1.42930473437
or, (1 + MIRR) = 1.12644
or, MIRR = 0.12644 or 12.64%
| Year | Cash Flows | Future value |
| 1 | $350,000 | $350,000 x (1 + 0.0865)2 = $413,168.7875 |
| 2 | $350,000 | $350,000 x (1 + 0.0865)1 = $380,275 |
| 3 | $350,000 | $350,000 x (1 + 0.0865)0 = $350,000 |
| Terminal Value | $1,143,443.7875 |
