CFIN
CFIN
6th Edition
ISBN: 9780357144039
Author: BESLEY
Publisher: CENGAGE L
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Chapter 9, Problem 10PROB
Summary Introduction

Modified Internal Rate of Return (MIRR) is the discount rate at which the present value of cash outflows is equal to the present value of the terminal cash flow. Here, the terminal value is calculated using the same required rate of return which is used to calculate the present value of cash outflows.

t=0nCOFt(1+r)t=t=1nCIFt(1+r)nt(1+MIRR)nMIRR=t=1nCIFt(1+r)ntt=0nCOFt(1+r)tn1

Here,

All the cash outflows at time “t” is “COFt

All the cash inflows at time “t” is “CIFt

Required rate of return is “r

Modified Internal Rate of Return is “MIRR

A project cost $82000 and is expected to generate $35,000, $70,000 and -$10,450 for Year 1,2 and 3 respectively. The required rate of return is 12%.

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