Los Angeles Lumber Company (LALC) is considering a project with a cost of $1,000 at Year 0 and inflows of $300 at the end of Years 1-5. LALC's cost of capital is 10 percent. What is the project's modified IRR (MIRR)? (Round off the answer to two decimal places.)

Question

Quizplus · Accepted Answer

To find the MIRR, first we need to find the future value of all cash inflows at the cost of capital. The future value of the inflows at year 5 would be:

$300*(1.1)^4 = $464.10

Then we calculate the terminal value of the project as the future value of all cash inflows compounded at the cost of capital until the end of the project (year 5), divided by the present value of the cost of the project:

MIRR = [(464.10/1000)^(1/5)] - 1 = 12.87%

Therefore, the best choice is B.

Los Angeles Lumber Company (LALC) Is Considering a Project with a Cost