A firm is considering two mutually exclusive projects X and

A firm is considering two mutually exclusive projects, X and Y, with the following cash flows:

The projects are equally risky, and their WACC is 11%. What is the MIRR of the project that maximizes shareholder value? Round your answer to two decimal places.

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Solution

1 2 3 4 FV of Cash flows Project X $90.00 $300.00 $430.00 $700.00 Project Y $1,100.00 $100.00 $45.00 $50.00 FV @ 11% 1.5181 1.3676 1.2321 1.1100 FV Project X $136.63 $410.29 $529.80 $777.00 $1,853.72 FV Project Y $1,669.88 $136.76 $55.44 $55.50 $1,917.59 MIRR = (Future Value of Positive Cash Flows at the Cost Of Capital of the Firm / Present Value of all Negative Cash Flows at the Financing Cost of the Firm)^(1/n) – 1 Project X = [($1853.72/1000)^(1/4)]-1 16.68% Project Y = [($1917.59/1000)^(1/4)]-1 17.68%