Hindelang Inc.is considering a project that has the following cash flow and WACC data.What is the project's MIRR? Note that a project's MIRR can be less than the WACC (and even negative), in which case it will be rejected.
A)13.42%
B)14.91%
C)16.56%
D)18.22%
E)20.04%

Question

Quizplus · Accepted Answer

To calculate the MIRR, we need to first calculate the initial outlay and the terminal value.

Initial Outlay: 
- Purchase cost of $700,000

Terminal Value: 
Year 1: $300,000 × 1.08 = $324,000 
Year 2: $300,000 × 1.08 × 1.08 = $349,920 
Year 3: $300,000 × 1.08 × 1.08 × 1.08 = $376,238.4 
Year 4: $300,000 × 1.08 × 1.08 × 1.08 × 1.08 = $403,993.47 
Year 5: $300,000 × 1.08 × 1.08 × 1.08 × 1.08 × 1.08 = $433,224.96

Sum of Cash Flows: 
- Year 1 to 5: $300,000

Using Excel, we can now calculate the MIRR using the following formula: 
=MIRR(range of cash flows, WACC, reinvestment rate)

=MIRR(-700000,324000,349920,376238.4,403993.47,433224.96,0.10,0.10)

MIRR = 16.56%

Since the MIRR is greater than the WACC of 10%, the project is acceptable. Therefore, the best choice is C.