Project A costs 45750 its expected net cash inflows are 1000

Project A costs $45,750, its expected net cash inflows are $10,000 per year for 7 years, and its WACC is 10 percent. What is the project\'s MIRR?

Solution

Initial Cost = $45,750
Annual Cash Inflows = $10,000
Life of Project = 7 years
WACC = 10%

Future Value of Cash Inflows = $10,000*1.10^6 + $10,000*1.10^5 + $10,000*1.10^4 + ... + $10,000*1.10 + $10,000
Future Value of Cash Inflows = $10,000 * (1.10^7 - 1) / 0.10
Future Value of Cash Inflows = $10,000 * 9.487171
Future Value of Cash Inflows = $94,871.71

MIRR = (Future Value of Cash Inflows / Initial Cost)^(1/n) - 1
MIRR = ($94,871.71 / $45,750)^(1/7) - 1
MIRR = 2.0737^(1/7) - 1
MIRR = 1.1098 - 1
MIRR = 0.1098
MIRR = 10.98%

So, MIRR of this project is 10.98%