O'Donnell Inc.has a required rate of return of 11.5 percent.The company has a project with the following cash flows: What is the project's modified internal rate of return (MIRR)?

Question

O'Donnell Inc.has a required rate of return of 11.5 percent.The company has a project with the following cash flows:  What is the project's modified internal rate of return (MIRR)?

Quizplus · Accepted Answer

To calculate the MIRR, we use the initial outlay and terminal value of the cash flows at the end of the project. The terminal value is found by compounding the cash inflows at the cost of capital and then discounting it back to the present value. Using the formula, we get MIRR = [(FV of positive cash flows / PV of negative cash flows)^(1/n)] - 1 = [(185,000 / -105,000)^(1/4)] - 1 = 32.90%. Therefore, the best choice is B.