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Watts Co. is considering a project that has the following cash flow and cost of capital (r) data. What is the project's MIRR? Note that a project's MIRR can be less than the cost of capital (and even negative), in which case it will be rejected.r = 10.00%Year 0 1 2 3 4Cash flows −$850 $300 $320 $340 $360a. 14.08%b. 15.65%c. 17.21%d. 18.94%e. 20.83%

Respuesta :

Answer:

MIRR = 15.65%

so correct option is b. 15.65%

Explanation:

solution

We will apply here formula for amount that is

A = P × [tex](1+\frac{r}{100} )^n[/tex]      ..................1

here A is future value  and P is present value  and r is rate and n is time period

so here future value of inflows will be

future value of inflows = [ 300 × (1.1)³ ] + [ 320 × (1.1)² ] + [ 340 × (1.1) ] + 360

future value of inflows = $1520.5

and MIRR will be here

MIRR = [tex](\frac{future value of inflows}{present value of outflows})^{\frac{1}{time period}} - 1 [/tex]

MIRR = [tex](\frac{1520.5}{850})^{\frac{1}{4}} - 1 [/tex]

MIRR = 15.65%

so correct option is b. 15.65%

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