Dry-Sand Company is considering investing in a new project. The project will need an initial investment of $1,200,000 and will generate $600,000 (after-tax) cash flows for three years. Calculate the MIRR (modified internal rate of return) for the project if the cost of capital is 15%.
A) 14.5%
B) 18.6%
C) 20.2%
D) 23.4%

Question

Quizplus · Accepted Answer

The MIRR is calculated by finding the future value of cash inflows at the cost of capital and the present value of cash outflows. The future value of $600,000 for three years at 15% is $2,086,500. The MIRR is the rate that equates this future value to the initial investment of $1,200,000, which is approximately 20.2%.

Dry-Sand Company Is Considering Investing in a New Project