Doak Corp. is evaluating a project with the following cash...

Doak Corp. is evaluating a project with the following cash flows. The company uses a discount rate of 9 percent and a reinvestment rate of 6 percent on all of its projects. Year Cash Flow 0 -$16,700 1 7,800 2 9,000 3 8,600 4 7,400 5 -4,800 Calculate the MIRR of the project using all three methods with these interest rates. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) Discounting approach % Reinvestment approach % Combination approach\10.44:%

Labs

Want to see this concept in action?

NEW

Explore this concept interactively to see how it behaves as you change inputs.

View Labs

Transcript

00:01 In this question, we need to calculate modified internal rate of return.

00:05 Modified internal rate of return.

00:20 So modified internal rate of return in three different situations.

00:24 Mirr using the discounting approach.

00:42 Using the discounted approach, first we will find out the present value of cash inflows.

00:48 It would be for the first year 10 ,200 divided by 1 plus 0 .09 to the power 1 plus 12 ,900 divided by 1 plus 0 .09 to the power 2 plus for the third year inflow is 14 ,800 divided by 1 plus 0 .09 to the power 3.

01:26 Next is 11 ,900 divided by 1 plus 0 .09 to the power 4.

01:37 For the last year it is negative.

01:42 So minus 8 ,400 divided by 1 plus 0 .09 to the power.

01:54 We solve it.

01:55 It comes out to be dollar 34 ,928 .9.

02:05 So this is the present value of cash inflows.

02:08 Present value of cash outflows would be equal to dollar 28.

02:22 So mirr in the first case would be pv of present value of cash inflows upon present value of cash outflows to the power 1 upon n minus 1.

02:45 So it is 34 ,928 .95 upon 28 ,000 to the power 1 by 5 minus 1.

03:03 So it comes out to be 7 .92%.

03:09 Next is mirr, modified internal rate of return using reinvestment approach...

Question

Please give Ace some feedback