J&E Inc.,use the Modified Internal Rate of Return (MIRR)when evaluating projects.J&E's cost of capital is 8.5%.What is the MIRR of a project if the initial costs are $4,300,000 and the project lasts five years,with each year producing the same after-tax cash inflows of $1,100,000?
A)About 8.81%
B)About 8.67%
C)About 8.50%
D)About 8.24%

Question

Quizplus · Accepted Answer

The Modified Internal Rate of Return (MIRR) is calculated by finding the interest rate that equates the present value of cash inflows to the future value of cash outflows, considering the cost of capital. Given the uniform annual cash inflows of $1,100,000 over five years and an initial cost of $4,300,000, the MIRR can be found using the formula for MIRR or financial calculators/software. The correct MIRR, given the cost of capital at 8.5%, is closest to 8.67%, taking into account the reinvestment of inflows at the cost of capital and the financing cost of the initial outlay.

J&E Inc,Use the Modified Internal Rate of Return (MIRR)when Evaluating Projects