Net Cash Flow 17000 20000 4000 11000 32000 47000 Year 0 2 4

Net Cash Flow, $ 17,000 20,000 4,000 11,000 32,000 47,000 Year 0 2 4

Solution

Hello!

MIRR = ( FVCF(c) / PVCF(fc) ) ^ ( 1 / n ) -1
where;

FVCF(c) = the future value of positive cash flows at the cost of capital for the company
(here, future value at the end of 5th year)

PVCF(fc) = the present value of negative cash flows at the financing cost of the company
(here, present value at the starting of the first year i.e. 0)

n = number of periods (here, n=5)

Here,
both the cost of capital and the financing cost is 12%

Therefore,
FVCF(c) = 4000(1+.12)³ + 32000(1+.12) + 47000
= 5619.7 + 35840 + 47000
= 88459.7

PVCF(fc) = 17000 + 20000/(1+.12) + 11000/(1+.12)³
= 17000 + 17857.14 + 7829.58
= 42686.72

MIRR= (88459.7/42686.72)^1/5 - 1
= (2.0723)^0.2 - 1
= 1.1569 - 1
= .1569
= 15.69%

Therefore,  external rate of return for the cash flows by using MIRR method is 15.69%.

Hope it helps!:)