MIRR A firm is considering two mutually exclusive projects X

MIRR A firm is considering two mutually exclusive projects, X and Y, with the following cash flows 0 4 Project X $1,000 $90 $320 $370 $750 Project Y $1,000 $900 $110 $55 $50 The projects are equally risky, and their WACC is 10%, what is the MIRR of the project that maximizes shareholder value? Round your answer to two decimal places. Do not round your intermediate calculations.

Solution

Project X:

WACC = 10%

Future Value of Cash Inflows = $90*1.10^3 + $320*1.10^2 + $370*1.10 + $750
Future Value of Cash Inflows = $1,663.99

MIRR = (Future Value of Cash Inflows / Present Value of Cash Outflow)^(1/n) - 1
MIRR = ($1,663.99 / $1,000)^(1/4) - 1
MIRR = 1.66399^(1/4) - 1
MIRR = 1.1358 - 1
MIRR = 0.1358 = 13.58%

Project Y:

WACC = 10%

Future Value of Cash Inflows = $900*1.10^3 + $110*1.10^2 + $55*1.10 + $50
Future Value of Cash Inflows = $1,441.50

MIRR = (Future Value of Cash Inflows / Present Value of Cash Outflow)^(1/n) - 1
MIRR = ($1,441.50 / $1,000)^(1/4) - 1
MIRR = 1.4415^(1/4) - 1
MIRR = 1.0957 - 1
MIRR = 0.0957 = 9.57%

So, MIRR of the project that maximize shareholder value is 13.58%