The MIRR (Modified internal rate of return ) for the project utilizing all three methods. Introduction: MIRR is the Modified internal rate of return, which is a financial measure of attracting the investments. It is utilized in the capital budgeting to rank the alternative investments of same size.

Question

Want to see more full solutions like this?

Answer 1

Question

Chapter 9, Problem 19QP

Summary Introduction

To calculate: The MIRR (Modified internal rate of return) for the project utilizing all three methods.

Introduction:

MIRR is the Modified internal rate of return, which is a financial measure of attracting the investments. It is utilized in the capital budgeting to rank the alternative investments of same size.

Expert Solution & Answer

Answer to Problem 19QP

The MIRR for the project using the discounted approach is 19.29%, reinvestment approach is 15.19%, and the combination approach is 14.338%.

Explanation of Solution

Given information:

Company S is assessing a project, where the cash flows are$11,200, $13,900, $15,800, $12,900, and -$9,400 for year 1, 2, 3, 4, and 5 respectively. The initial cost is $29,000.

Discounted approach:

In this approach, compute the negative cash outflows value at the year 0. On the other hand, the positive cash flows remain at its time of occurrence. Hence, discount the cash outflows to year 0.

$Time 0 cash flow=Initial cost+−Cash outflows(1+r)t=−$29,000+−$9,400(1+0.10)5=−$34,836.66$

Hence, the discounted cash flow at time 0 is -$34,836.66.

Equation of MIRR in discounted approach:

$0=−$34,836.66+$11,200(1+MIRR)+$13,900(1+MIRR)2+$15,800(1+MIRR)3+$12,900(1+MIRR)4$

Compute MIRR using a spreadsheet:

Step 1:

Fundamentals Of Corporate Finance, Tenth Standard Edition, Chapter 9, Problem 19QP , additional homework tip 1

Type the equation of NPV in H6 in the spreadsheet and consider the MIRR value as H7.

Step 2:

Fundamentals Of Corporate Finance, Tenth Standard Edition, Chapter 9, Problem 19QP , additional homework tip 2

Assume the MIRRvalue as 10%.

Step 3:

Fundamentals Of Corporate Finance, Tenth Standard Edition, Chapter 9, Problem 19QP , additional homework tip 3

In the spreadsheet, go to data and select What-If-Analysis.
In What-If-Analysis, select goal seek.
In “Set cell”, select H6 (the formula).
The “To value” is considered as 0 (the assumption value for NPV).
The H7 cell is selected for the 'By changing cell'.

Step 4:

Fundamentals Of Corporate Finance, Tenth Standard Edition, Chapter 9, Problem 19QP , additional homework tip 4

Following the previous step, click OK in the goal seek status. The goal seek status appears with the MIRRvalue.

Step 5:

Fundamentals Of Corporate Finance, Tenth Standard Edition, Chapter 9, Problem 19QP , additional homework tip 5

Thevalue appears to be 19.2878331713426%.

Hence, the MIRRvalue is 19.29%.

Reinvestment approach:

In this approach, compute the future value of all the cash flows excluding the initial cost at the closure of the project. Hence, compute the reinvesting cash flows to year 5 as follows:

$Time 5 cash flow=Cash flows (year1(1+r)4+year2(1+r)3+year3(1+r)2+year4(1+r)+year5)=($11,200(1+0.10)4+$13,900(1+0.10)3+$15,800(1+0.10)2+$12,900(1+0.10)−$9,400)=$11,200(1.4641)+$13,900(1.331)+$15,800(1.21)+$12,900(1.10)−$9,400=$58,806.82$

Hence, the reinvesting cash flow at time 5 is $58,806.82.

Equation of MIRR in reinvestment approach:

$0=−$29,000+$58,806.82(1+MIRR)5$

Compute the MIRR:

$0=−$29,000+$58,806.82(1+MIRR)5$58,806.82$29,000=(1+MIRR)5MIRR=($58,806.82$29,000)1/5−1MIRR=0.1519 or 15.19%$

Hence, the MIRR is 15.19%.

Combination approach:

Note: In this approach, compute all the cash outflows at year 0 and all the cash inflows at the closure of the project. Hence, the value of the cash flows is as follows:

$Time 0 cash flow=Initial cost+−Cash outflows(1+r)t=−$29,000+−$9,400(1+0.10)5=−$34,836.66$

Hence, the total cash outflow at year 0 is -$34,836.66.

$Time 5 cash flow=Cash flows (year1(1+r)4+year2(1+r)3+year3(1+r)2+year4(1+r)+year5)=($11,200(1+0.10)4+$13,900(1+0.10)3+$15,800(1+0.10)2+$12,900(1+0.10))=$11,200(1.4641)+$13,900(1.331)+$15,800(1.21)+$12,900(1.10)=$68,206.82$

Hence, the value of total cash inflows is $68,206.82.

Equation of MIRR using combination approach:

$0=−$34,836.66+$68,206.82(1+MIRR)5$

Compute the MIRR:

$0=−$34,836.66+$68,206.82(1+MIRR)5$68,206.82$34,836.66=(1+MIRR)5MIRR=($68,206.82$34,836.66)1/5−1MIRR=0.1438 or 14.38%$

Hence, the MIRR is 14.38%.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Students have asked these similar questions

At year-end 2019, Wallace Landscaping’s total assets were $2.30 million, and its accounts payable were $430,000. Sales, which in 2019 were $2.9 million, are expected to increase by 20% in 2020. Total assets and accounts payable are proportional to sales, and that relationship will be maintained. Wallace typically uses no current liabilities other than accounts payable. Common stock amounted to $630,000 in 2019, and retained earnings were $330,000. Wallace has arranged to sell $180,000 of new common stock in 2020 to meet some of its financing needs. The remainder of its financing needs will be met by issuing new long-term debt at the end of 2020. (Because the debt is added at the end of the year, there will be no additional interest expense due to the new debt.) Its net profit margin on sales is 5%, and 50% of earnings will be paid out as dividends. What was Wallace's total long-term debt in 2019? Round your answer to the nearest dollar. $ What were Wallace's total liabilities in…

Solve quickly

Smiley Corporation's current sales and partial balance sheet are shown below. This year Sales $ 10,000 Balance Sheet: Liabilities Accounts payable $ 2,000 Notes payable $ 2,000 Accruals $ 1,400 Total current liabilities $ 5,400 Long-term bonds $ 2,000 Total liabilities $ 7,400 Common stock $ 1,000 Retained earnings $ 2,500 Total common equity $ 3,500 Total liabilities & equity $ 10,900 Sales are expected to grow by 8% next year. Assuming no change in operations from this year to next year, what are the projected spontaneous liabilities? Do not round intermediate calculations. Round your answer to the nearest dollar.

Answer 2

Question

Chapter 9, Problem 19QP

Summary Introduction

To calculate: The MIRR (Modified internal rate of return) for the project utilizing all three methods.

Introduction:

MIRR is the Modified internal rate of return, which is a financial measure of attracting the investments. It is utilized in the capital budgeting to rank the alternative investments of same size.

Expert Solution & Answer

Answer to Problem 19QP

The MIRR for the project using the discounted approach is 19.29%, reinvestment approach is 15.19%, and the combination approach is 14.338%.

Explanation of Solution

Given information:

Company S is assessing a project, where the cash flows are$11,200, $13,900, $15,800, $12,900, and -$9,400 for year 1, 2, 3, 4, and 5 respectively. The initial cost is $29,000.

Discounted approach:

In this approach, compute the negative cash outflows value at the year 0. On the other hand, the positive cash flows remain at its time of occurrence. Hence, discount the cash outflows to year 0.

$Time 0 cash flow=Initial cost+−Cash outflows(1+r)t=−$29,000+−$9,400(1+0.10)5=−$34,836.66$

Hence, the discounted cash flow at time 0 is -$34,836.66.

Equation of MIRR in discounted approach:

$0=−$34,836.66+$11,200(1+MIRR)+$13,900(1+MIRR)2+$15,800(1+MIRR)3+$12,900(1+MIRR)4$

Compute MIRR using a spreadsheet:

Step 1:

Fundamentals Of Corporate Finance, Tenth Standard Edition, Chapter 9, Problem 19QP , additional homework tip 1

Type the equation of NPV in H6 in the spreadsheet and consider the MIRR value as H7.

Step 2:

Fundamentals Of Corporate Finance, Tenth Standard Edition, Chapter 9, Problem 19QP , additional homework tip 2

Assume the MIRRvalue as 10%.

Step 3:

Fundamentals Of Corporate Finance, Tenth Standard Edition, Chapter 9, Problem 19QP , additional homework tip 3

In the spreadsheet, go to data and select What-If-Analysis.
In What-If-Analysis, select goal seek.
In “Set cell”, select H6 (the formula).
The “To value” is considered as 0 (the assumption value for NPV).
The H7 cell is selected for the 'By changing cell'.

Step 4:

Fundamentals Of Corporate Finance, Tenth Standard Edition, Chapter 9, Problem 19QP , additional homework tip 4

Following the previous step, click OK in the goal seek status. The goal seek status appears with the MIRRvalue.

Step 5:

Fundamentals Of Corporate Finance, Tenth Standard Edition, Chapter 9, Problem 19QP , additional homework tip 5

Thevalue appears to be 19.2878331713426%.

Hence, the MIRRvalue is 19.29%.

Reinvestment approach:

In this approach, compute the future value of all the cash flows excluding the initial cost at the closure of the project. Hence, compute the reinvesting cash flows to year 5 as follows:

$Time 5 cash flow=Cash flows (year1(1+r)4+year2(1+r)3+year3(1+r)2+year4(1+r)+year5)=($11,200(1+0.10)4+$13,900(1+0.10)3+$15,800(1+0.10)2+$12,900(1+0.10)−$9,400)=$11,200(1.4641)+$13,900(1.331)+$15,800(1.21)+$12,900(1.10)−$9,400=$58,806.82$

Hence, the reinvesting cash flow at time 5 is $58,806.82.

Equation of MIRR in reinvestment approach:

$0=−$29,000+$58,806.82(1+MIRR)5$

Compute the MIRR:

$0=−$29,000+$58,806.82(1+MIRR)5$58,806.82$29,000=(1+MIRR)5MIRR=($58,806.82$29,000)1/5−1MIRR=0.1519 or 15.19%$

Hence, the MIRR is 15.19%.

Combination approach:

Note: In this approach, compute all the cash outflows at year 0 and all the cash inflows at the closure of the project. Hence, the value of the cash flows is as follows:

$Time 0 cash flow=Initial cost+−Cash outflows(1+r)t=−$29,000+−$9,400(1+0.10)5=−$34,836.66$

Hence, the total cash outflow at year 0 is -$34,836.66.

$Time 5 cash flow=Cash flows (year1(1+r)4+year2(1+r)3+year3(1+r)2+year4(1+r)+year5)=($11,200(1+0.10)4+$13,900(1+0.10)3+$15,800(1+0.10)2+$12,900(1+0.10))=$11,200(1.4641)+$13,900(1.331)+$15,800(1.21)+$12,900(1.10)=$68,206.82$

Hence, the value of total cash inflows is $68,206.82.

Equation of MIRR using combination approach:

$0=−$34,836.66+$68,206.82(1+MIRR)5$

Compute the MIRR:

$0=−$34,836.66+$68,206.82(1+MIRR)5$68,206.82$34,836.66=(1+MIRR)5MIRR=($68,206.82$34,836.66)1/5−1MIRR=0.1438 or 14.38%$

Hence, the MIRR is 14.38%.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 3

Question

Chapter 9, Problem 19QP

Summary Introduction

To calculate: The MIRR (Modified internal rate of return) for the project utilizing all three methods.

Introduction:

MIRR is the Modified internal rate of return, which is a financial measure of attracting the investments. It is utilized in the capital budgeting to rank the alternative investments of same size.

Expert Solution & Answer

Answer to Problem 19QP

The MIRR for the project using the discounted approach is 19.29%, reinvestment approach is 15.19%, and the combination approach is 14.338%.

Explanation of Solution

Given information:

Company S is assessing a project, where the cash flows are$11,200, $13,900, $15,800, $12,900, and -$9,400 for year 1, 2, 3, 4, and 5 respectively. The initial cost is $29,000.

Discounted approach:

In this approach, compute the negative cash outflows value at the year 0. On the other hand, the positive cash flows remain at its time of occurrence. Hence, discount the cash outflows to year 0.

$Time 0 cash flow=Initial cost+−Cash outflows(1+r)t=−$29,000+−$9,400(1+0.10)5=−$34,836.66$

Hence, the discounted cash flow at time 0 is -$34,836.66.

Equation of MIRR in discounted approach:

$0=−$34,836.66+$11,200(1+MIRR)+$13,900(1+MIRR)2+$15,800(1+MIRR)3+$12,900(1+MIRR)4$

Compute MIRR using a spreadsheet:

Step 1:

Fundamentals Of Corporate Finance, Tenth Standard Edition, Chapter 9, Problem 19QP , additional homework tip 1

Type the equation of NPV in H6 in the spreadsheet and consider the MIRR value as H7.

Step 2:

Fundamentals Of Corporate Finance, Tenth Standard Edition, Chapter 9, Problem 19QP , additional homework tip 2

Assume the MIRRvalue as 10%.

Step 3:

Fundamentals Of Corporate Finance, Tenth Standard Edition, Chapter 9, Problem 19QP , additional homework tip 3

In the spreadsheet, go to data and select What-If-Analysis.
In What-If-Analysis, select goal seek.
In “Set cell”, select H6 (the formula).
The “To value” is considered as 0 (the assumption value for NPV).
The H7 cell is selected for the 'By changing cell'.

Step 4:

Fundamentals Of Corporate Finance, Tenth Standard Edition, Chapter 9, Problem 19QP , additional homework tip 4

Following the previous step, click OK in the goal seek status. The goal seek status appears with the MIRRvalue.

Step 5:

Fundamentals Of Corporate Finance, Tenth Standard Edition, Chapter 9, Problem 19QP , additional homework tip 5

Thevalue appears to be 19.2878331713426%.

Hence, the MIRRvalue is 19.29%.

Reinvestment approach:

In this approach, compute the future value of all the cash flows excluding the initial cost at the closure of the project. Hence, compute the reinvesting cash flows to year 5 as follows:

$Time 5 cash flow=Cash flows (year1(1+r)4+year2(1+r)3+year3(1+r)2+year4(1+r)+year5)=($11,200(1+0.10)4+$13,900(1+0.10)3+$15,800(1+0.10)2+$12,900(1+0.10)−$9,400)=$11,200(1.4641)+$13,900(1.331)+$15,800(1.21)+$12,900(1.10)−$9,400=$58,806.82$

Hence, the reinvesting cash flow at time 5 is $58,806.82.

Equation of MIRR in reinvestment approach:

$0=−$29,000+$58,806.82(1+MIRR)5$

Compute the MIRR:

$0=−$29,000+$58,806.82(1+MIRR)5$58,806.82$29,000=(1+MIRR)5MIRR=($58,806.82$29,000)1/5−1MIRR=0.1519 or 15.19%$

Hence, the MIRR is 15.19%.

Combination approach:

Note: In this approach, compute all the cash outflows at year 0 and all the cash inflows at the closure of the project. Hence, the value of the cash flows is as follows:

$Time 0 cash flow=Initial cost+−Cash outflows(1+r)t=−$29,000+−$9,400(1+0.10)5=−$34,836.66$

Hence, the total cash outflow at year 0 is -$34,836.66.

$Time 5 cash flow=Cash flows (year1(1+r)4+year2(1+r)3+year3(1+r)2+year4(1+r)+year5)=($11,200(1+0.10)4+$13,900(1+0.10)3+$15,800(1+0.10)2+$12,900(1+0.10))=$11,200(1.4641)+$13,900(1.331)+$15,800(1.21)+$12,900(1.10)=$68,206.82$

Hence, the value of total cash inflows is $68,206.82.

Equation of MIRR using combination approach:

$0=−$34,836.66+$68,206.82(1+MIRR)5$

Compute the MIRR:

$0=−$34,836.66+$68,206.82(1+MIRR)5$68,206.82$34,836.66=(1+MIRR)5MIRR=($68,206.82$34,836.66)1/5−1MIRR=0.1438 or 14.38%$

Hence, the MIRR is 14.38%.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Question

Chapter 9, Problem 19QP

Summary Introduction

To calculate: The MIRR (Modified internal rate of return) for the project utilizing all three methods.

Introduction:

MIRR is the Modified internal rate of return, which is a financial measure of attracting the investments. It is utilized in the capital budgeting to rank the alternative investments of same size.

Expert Solution & Answer

Answer to Problem 19QP

The MIRR for the project using the discounted approach is 19.29%, reinvestment approach is 15.19%, and the combination approach is 14.338%.

Explanation of Solution

Given information:

Company S is assessing a project, where the cash flows are$11,200, $13,900, $15,800, $12,900, and -$9,400 for year 1, 2, 3, 4, and 5 respectively. The initial cost is $29,000.

Discounted approach:

In this approach, compute the negative cash outflows value at the year 0. On the other hand, the positive cash flows remain at its time of occurrence. Hence, discount the cash outflows to year 0.

$Time 0 cash flow=Initial cost+−Cash outflows(1+r)t=−$29,000+−$9,400(1+0.10)5=−$34,836.66$

Hence, the discounted cash flow at time 0 is -$34,836.66.

Equation of MIRR in discounted approach:

$0=−$34,836.66+$11,200(1+MIRR)+$13,900(1+MIRR)2+$15,800(1+MIRR)3+$12,900(1+MIRR)4$

Compute MIRR using a spreadsheet:

Step 1:

Fundamentals Of Corporate Finance, Tenth Standard Edition, Chapter 9, Problem 19QP , additional homework tip 1

Type the equation of NPV in H6 in the spreadsheet and consider the MIRR value as H7.

Step 2:

Fundamentals Of Corporate Finance, Tenth Standard Edition, Chapter 9, Problem 19QP , additional homework tip 2

Assume the MIRRvalue as 10%.

Step 3:

Fundamentals Of Corporate Finance, Tenth Standard Edition, Chapter 9, Problem 19QP , additional homework tip 3

In the spreadsheet, go to data and select What-If-Analysis.
In What-If-Analysis, select goal seek.
In “Set cell”, select H6 (the formula).
The “To value” is considered as 0 (the assumption value for NPV).
The H7 cell is selected for the 'By changing cell'.

Step 4:

Fundamentals Of Corporate Finance, Tenth Standard Edition, Chapter 9, Problem 19QP , additional homework tip 4

Following the previous step, click OK in the goal seek status. The goal seek status appears with the MIRRvalue.

Step 5:

Fundamentals Of Corporate Finance, Tenth Standard Edition, Chapter 9, Problem 19QP , additional homework tip 5

Thevalue appears to be 19.2878331713426%.

Hence, the MIRRvalue is 19.29%.

Reinvestment approach:

In this approach, compute the future value of all the cash flows excluding the initial cost at the closure of the project. Hence, compute the reinvesting cash flows to year 5 as follows:

$Time 5 cash flow=Cash flows (year1(1+r)4+year2(1+r)3+year3(1+r)2+year4(1+r)+year5)=($11,200(1+0.10)4+$13,900(1+0.10)3+$15,800(1+0.10)2+$12,900(1+0.10)−$9,400)=$11,200(1.4641)+$13,900(1.331)+$15,800(1.21)+$12,900(1.10)−$9,400=$58,806.82$

Hence, the reinvesting cash flow at time 5 is $58,806.82.

Equation of MIRR in reinvestment approach:

$0=−$29,000+$58,806.82(1+MIRR)5$

Compute the MIRR:

$0=−$29,000+$58,806.82(1+MIRR)5$58,806.82$29,000=(1+MIRR)5MIRR=($58,806.82$29,000)1/5−1MIRR=0.1519 or 15.19%$

Hence, the MIRR is 15.19%.

Combination approach:

Note: In this approach, compute all the cash outflows at year 0 and all the cash inflows at the closure of the project. Hence, the value of the cash flows is as follows:

$Time 0 cash flow=Initial cost+−Cash outflows(1+r)t=−$29,000+−$9,400(1+0.10)5=−$34,836.66$

Hence, the total cash outflow at year 0 is -$34,836.66.

$Time 5 cash flow=Cash flows (year1(1+r)4+year2(1+r)3+year3(1+r)2+year4(1+r)+year5)=($11,200(1+0.10)4+$13,900(1+0.10)3+$15,800(1+0.10)2+$12,900(1+0.10))=$11,200(1.4641)+$13,900(1.331)+$15,800(1.21)+$12,900(1.10)=$68,206.82$

Hence, the value of total cash inflows is $68,206.82.

Equation of MIRR using combination approach:

$0=−$34,836.66+$68,206.82(1+MIRR)5$

Compute the MIRR:

$0=−$34,836.66+$68,206.82(1+MIRR)5$68,206.82$34,836.66=(1+MIRR)5MIRR=($68,206.82$34,836.66)1/5−1MIRR=0.1438 or 14.38%$

Hence, the MIRR is 14.38%.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 9, Problem 19QP

Summary Introduction

To calculate: The MIRR (Modified internal rate of return) for the project utilizing all three methods.

Introduction:

MIRR is the Modified internal rate of return, which is a financial measure of attracting the investments. It is utilized in the capital budgeting to rank the alternative investments of same size.

Expert Solution & Answer

Answer to Problem 19QP

The MIRR for the project using the discounted approach is 19.29%, reinvestment approach is 15.19%, and the combination approach is 14.338%.

Explanation of Solution

Given information:

Company S is assessing a project, where the cash flows are$11,200, $13,900, $15,800, $12,900, and -$9,400 for year 1, 2, 3, 4, and 5 respectively. The initial cost is $29,000.

Discounted approach:

In this approach, compute the negative cash outflows value at the year 0. On the other hand, the positive cash flows remain at its time of occurrence. Hence, discount the cash outflows to year 0.

$Time 0 cash flow=Initial cost+−Cash outflows(1+r)t=−$29,000+−$9,400(1+0.10)5=−$34,836.66$

Hence, the discounted cash flow at time 0 is -$34,836.66.

Equation of MIRR in discounted approach:

$0=−$34,836.66+$11,200(1+MIRR)+$13,900(1+MIRR)2+$15,800(1+MIRR)3+$12,900(1+MIRR)4$

Compute MIRR using a spreadsheet:

Step 1:

Fundamentals Of Corporate Finance, Tenth Standard Edition, Chapter 9, Problem 19QP , additional homework tip 1

Type the equation of NPV in H6 in the spreadsheet and consider the MIRR value as H7.

Step 2:

Fundamentals Of Corporate Finance, Tenth Standard Edition, Chapter 9, Problem 19QP , additional homework tip 2

Assume the MIRRvalue as 10%.

Step 3:

Fundamentals Of Corporate Finance, Tenth Standard Edition, Chapter 9, Problem 19QP , additional homework tip 3

In the spreadsheet, go to data and select What-If-Analysis.
In What-If-Analysis, select goal seek.
In “Set cell”, select H6 (the formula).
The “To value” is considered as 0 (the assumption value for NPV).
The H7 cell is selected for the 'By changing cell'.

Step 4:

Fundamentals Of Corporate Finance, Tenth Standard Edition, Chapter 9, Problem 19QP , additional homework tip 4

Following the previous step, click OK in the goal seek status. The goal seek status appears with the MIRRvalue.

Step 5:

Fundamentals Of Corporate Finance, Tenth Standard Edition, Chapter 9, Problem 19QP , additional homework tip 5

Thevalue appears to be 19.2878331713426%.

Hence, the MIRRvalue is 19.29%.

Reinvestment approach:

In this approach, compute the future value of all the cash flows excluding the initial cost at the closure of the project. Hence, compute the reinvesting cash flows to year 5 as follows:

$Time 5 cash flow=Cash flows (year1(1+r)4+year2(1+r)3+year3(1+r)2+year4(1+r)+year5)=($11,200(1+0.10)4+$13,900(1+0.10)3+$15,800(1+0.10)2+$12,900(1+0.10)−$9,400)=$11,200(1.4641)+$13,900(1.331)+$15,800(1.21)+$12,900(1.10)−$9,400=$58,806.82$

Hence, the reinvesting cash flow at time 5 is $58,806.82.

Equation of MIRR in reinvestment approach:

$0=−$29,000+$58,806.82(1+MIRR)5$

Compute the MIRR:

$0=−$29,000+$58,806.82(1+MIRR)5$58,806.82$29,000=(1+MIRR)5MIRR=($58,806.82$29,000)1/5−1MIRR=0.1519 or 15.19%$

Hence, the MIRR is 15.19%.

Combination approach:

Note: In this approach, compute all the cash outflows at year 0 and all the cash inflows at the closure of the project. Hence, the value of the cash flows is as follows:

$Time 0 cash flow=Initial cost+−Cash outflows(1+r)t=−$29,000+−$9,400(1+0.10)5=−$34,836.66$

Hence, the total cash outflow at year 0 is -$34,836.66.

$Time 5 cash flow=Cash flows (year1(1+r)4+year2(1+r)3+year3(1+r)2+year4(1+r)+year5)=($11,200(1+0.10)4+$13,900(1+0.10)3+$15,800(1+0.10)2+$12,900(1+0.10))=$11,200(1.4641)+$13,900(1.331)+$15,800(1.21)+$12,900(1.10)=$68,206.82$

Hence, the value of total cash inflows is $68,206.82.

Equation of MIRR using combination approach:

$0=−$34,836.66+$68,206.82(1+MIRR)5$

Compute the MIRR:

$0=−$34,836.66+$68,206.82(1+MIRR)5$68,206.82$34,836.66=(1+MIRR)5MIRR=($68,206.82$34,836.66)1/5−1MIRR=0.1438 or 14.38%$

Hence, the MIRR is 14.38%.

Answer 6

Chapter 9, Problem 19QP

Summary Introduction

To calculate: The MIRR (Modified internal rate of return) for the project utilizing all three methods.

Introduction:

MIRR is the Modified internal rate of return, which is a financial measure of attracting the investments. It is utilized in the capital budgeting to rank the alternative investments of same size.

Expert Solution & Answer

Answer to Problem 19QP

The MIRR for the project using the discounted approach is 19.29%, reinvestment approach is 15.19%, and the combination approach is 14.338%.

Explanation of Solution

Given information:

Company S is assessing a project, where the cash flows are$11,200, $13,900, $15,800, $12,900, and -$9,400 for year 1, 2, 3, 4, and 5 respectively. The initial cost is $29,000.

Discounted approach:

In this approach, compute the negative cash outflows value at the year 0. On the other hand, the positive cash flows remain at its time of occurrence. Hence, discount the cash outflows to year 0.

$Time 0 cash flow=Initial cost+−Cash outflows(1+r)t=−$29,000+−$9,400(1+0.10)5=−$34,836.66$

Hence, the discounted cash flow at time 0 is -$34,836.66.

Equation of MIRR in discounted approach:

$0=−$34,836.66+$11,200(1+MIRR)+$13,900(1+MIRR)2+$15,800(1+MIRR)3+$12,900(1+MIRR)4$

Compute MIRR using a spreadsheet:

Step 1:

Fundamentals Of Corporate Finance, Tenth Standard Edition, Chapter 9, Problem 19QP , additional homework tip 1

Type the equation of NPV in H6 in the spreadsheet and consider the MIRR value as H7.

Step 2:

Fundamentals Of Corporate Finance, Tenth Standard Edition, Chapter 9, Problem 19QP , additional homework tip 2

Assume the MIRRvalue as 10%.

Step 3:

Fundamentals Of Corporate Finance, Tenth Standard Edition, Chapter 9, Problem 19QP , additional homework tip 3

In the spreadsheet, go to data and select What-If-Analysis.
In What-If-Analysis, select goal seek.
In “Set cell”, select H6 (the formula).
The “To value” is considered as 0 (the assumption value for NPV).
The H7 cell is selected for the 'By changing cell'.

Step 4:

Fundamentals Of Corporate Finance, Tenth Standard Edition, Chapter 9, Problem 19QP , additional homework tip 4

Following the previous step, click OK in the goal seek status. The goal seek status appears with the MIRRvalue.

Step 5:

Fundamentals Of Corporate Finance, Tenth Standard Edition, Chapter 9, Problem 19QP , additional homework tip 5

Thevalue appears to be 19.2878331713426%.

Hence, the MIRRvalue is 19.29%.

Reinvestment approach:

In this approach, compute the future value of all the cash flows excluding the initial cost at the closure of the project. Hence, compute the reinvesting cash flows to year 5 as follows:

$Time 5 cash flow=Cash flows (year1(1+r)4+year2(1+r)3+year3(1+r)2+year4(1+r)+year5)=($11,200(1+0.10)4+$13,900(1+0.10)3+$15,800(1+0.10)2+$12,900(1+0.10)−$9,400)=$11,200(1.4641)+$13,900(1.331)+$15,800(1.21)+$12,900(1.10)−$9,400=$58,806.82$

Hence, the reinvesting cash flow at time 5 is $58,806.82.

Equation of MIRR in reinvestment approach:

$0=−$29,000+$58,806.82(1+MIRR)5$

Compute the MIRR:

$0=−$29,000+$58,806.82(1+MIRR)5$58,806.82$29,000=(1+MIRR)5MIRR=($58,806.82$29,000)1/5−1MIRR=0.1519 or 15.19%$

Hence, the MIRR is 15.19%.

Combination approach:

Note: In this approach, compute all the cash outflows at year 0 and all the cash inflows at the closure of the project. Hence, the value of the cash flows is as follows:

$Time 0 cash flow=Initial cost+−Cash outflows(1+r)t=−$29,000+−$9,400(1+0.10)5=−$34,836.66$

Hence, the total cash outflow at year 0 is -$34,836.66.

$Time 5 cash flow=Cash flows (year1(1+r)4+year2(1+r)3+year3(1+r)2+year4(1+r)+year5)=($11,200(1+0.10)4+$13,900(1+0.10)3+$15,800(1+0.10)2+$12,900(1+0.10))=$11,200(1.4641)+$13,900(1.331)+$15,800(1.21)+$12,900(1.10)=$68,206.82$

Hence, the value of total cash inflows is $68,206.82.

Equation of MIRR using combination approach:

$0=−$34,836.66+$68,206.82(1+MIRR)5$

Compute the MIRR:

$0=−$34,836.66+$68,206.82(1+MIRR)5$68,206.82$34,836.66=(1+MIRR)5MIRR=($68,206.82$34,836.66)1/5−1MIRR=0.1438 or 14.38%$

Hence, the MIRR is 14.38%.

Answer 7

Chapter 9, Problem 19QP

Summary Introduction

To calculate: The MIRR (Modified internal rate of return) for the project utilizing all three methods.

Introduction:

MIRR is the Modified internal rate of return, which is a financial measure of attracting the investments. It is utilized in the capital budgeting to rank the alternative investments of same size.

Answer 8

Expert Solution & Answer

Answer to Problem 19QP

The MIRR for the project using the discounted approach is 19.29%, reinvestment approach is 15.19%, and the combination approach is 14.338%.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

Explanation of Solution

Given information:

Company S is assessing a project, where the cash flows are$11,200, $13,900, $15,800, $12,900, and -$9,400 for year 1, 2, 3, 4, and 5 respectively. The initial cost is $29,000.

Discounted approach:

In this approach, compute the negative cash outflows value at the year 0. On the other hand, the positive cash flows remain at its time of occurrence. Hence, discount the cash outflows to year 0.

$Time 0 cash flow=Initial cost+−Cash outflows(1+r)t=−$29,000+−$9,400(1+0.10)5=−$34,836.66$

Hence, the discounted cash flow at time 0 is -$34,836.66.

Equation of MIRR in discounted approach:

$0=−$34,836.66+$11,200(1+MIRR)+$13,900(1+MIRR)2+$15,800(1+MIRR)3+$12,900(1+MIRR)4$

Compute MIRR using a spreadsheet:

Step 1:

Fundamentals Of Corporate Finance, Tenth Standard Edition, Chapter 9, Problem 19QP , additional homework tip 1

Type the equation of NPV in H6 in the spreadsheet and consider the MIRR value as H7.

Step 2:

Fundamentals Of Corporate Finance, Tenth Standard Edition, Chapter 9, Problem 19QP , additional homework tip 2

Assume the MIRRvalue as 10%.

Step 3:

Fundamentals Of Corporate Finance, Tenth Standard Edition, Chapter 9, Problem 19QP , additional homework tip 3

In the spreadsheet, go to data and select What-If-Analysis.
In What-If-Analysis, select goal seek.
In “Set cell”, select H6 (the formula).
The “To value” is considered as 0 (the assumption value for NPV).
The H7 cell is selected for the 'By changing cell'.

Step 4:

Fundamentals Of Corporate Finance, Tenth Standard Edition, Chapter 9, Problem 19QP , additional homework tip 4

Following the previous step, click OK in the goal seek status. The goal seek status appears with the MIRRvalue.

Step 5:

Fundamentals Of Corporate Finance, Tenth Standard Edition, Chapter 9, Problem 19QP , additional homework tip 5

Thevalue appears to be 19.2878331713426%.

Hence, the MIRRvalue is 19.29%.

Reinvestment approach:

In this approach, compute the future value of all the cash flows excluding the initial cost at the closure of the project. Hence, compute the reinvesting cash flows to year 5 as follows:

$Time 5 cash flow=Cash flows (year1(1+r)4+year2(1+r)3+year3(1+r)2+year4(1+r)+year5)=($11,200(1+0.10)4+$13,900(1+0.10)3+$15,800(1+0.10)2+$12,900(1+0.10)−$9,400)=$11,200(1.4641)+$13,900(1.331)+$15,800(1.21)+$12,900(1.10)−$9,400=$58,806.82$

Hence, the reinvesting cash flow at time 5 is $58,806.82.

Equation of MIRR in reinvestment approach:

$0=−$29,000+$58,806.82(1+MIRR)5$

Compute the MIRR:

$0=−$29,000+$58,806.82(1+MIRR)5$58,806.82$29,000=(1+MIRR)5MIRR=($58,806.82$29,000)1/5−1MIRR=0.1519 or 15.19%$

Hence, the MIRR is 15.19%.

Combination approach:

Note: In this approach, compute all the cash outflows at year 0 and all the cash inflows at the closure of the project. Hence, the value of the cash flows is as follows:

$Time 0 cash flow=Initial cost+−Cash outflows(1+r)t=−$29,000+−$9,400(1+0.10)5=−$34,836.66$

Hence, the total cash outflow at year 0 is -$34,836.66.

$Time 5 cash flow=Cash flows (year1(1+r)4+year2(1+r)3+year3(1+r)2+year4(1+r)+year5)=($11,200(1+0.10)4+$13,900(1+0.10)3+$15,800(1+0.10)2+$12,900(1+0.10))=$11,200(1.4641)+$13,900(1.331)+$15,800(1.21)+$12,900(1.10)=$68,206.82$