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 projected 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 projected 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

We can calculate the MIRR using the formula:
MIRR = ((Final Value of Positive Cash Flows / Initial Cost)^(1/n)) / ((-Initial Value of Negative Cash Flows / Initial Cost)^(1/m)) - 1
where, n = number of periods for positive cash flows and m = number of periods for negative cash flows

Using the given data, we can calculate the MIRR as follows:
Initial Cost = $500,000
Final Value of Positive Cash Flows (after 5 years) = $850,000
Number of periods for positive cash flows (n) = 5
Initial Value of Negative Cash Flows = -$300,000
Number of periods for negative cash flows (m) = 2

MIRR = ((850,000/500,000)^(1/5)) / ((300,000/500,000)^(1/2)) - 1
MIRR = 1.1656
MIRR = 16.56%

Since the MIRR (16.56%) is greater than the WACC (12%), the project is acceptable. Therefore, the best choice is C.