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

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%

Quizplus · Accepted Answer

To calculate the MIRR, we need to first calculate the terminal value of the project using its cash flows and the WACC:

PV of positive cash flows = $50,000 + $75,000/(1+0.10)^1 + $125,000/(1+0.10)^2 + $150,000/(1+0.10)^3 = $323,094.23

PV of negative cash flows = -$200,000

Terminal value = $323,094.23 × (1+0.10)^3 + -$200,000 = $108,836.29

Next, we can use Excel's MIRR function to calculate the MIRR:

= MIRR(-200000,50000,75000,125000,150000,108836.29)

This gives us a MIRR of 16.56%, which is greater than the WACC of 10%. Therefore, the project should be accepted.