The director of capital budgeting for Giant Inc. has identified
two mutually exclusive projects, L and...
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Finance
The director of capital budgeting for Giant Inc. has identifiedtwo mutually exclusive projects, L and S, with the followingexpected net cash flows: Expected Net Cash Flows Year Project LProject S 0 ($100) ($100) 1 10 70 2 60 50 3 80 20 Both projectshave a cost of capital of 12 percent. What is Project S's MIRR?What is Project L's MIRR?
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Computation of MIRR
Year
project
L
project
S
0
-100
-100
1
10
70
2
60
50
3
80
20
we have
to first compute the future value of the cash flow from year 1 to 3
for project L
Year
project
L
Future
value
1
10
12.544
=10*(1+12%)^2
2
60
67.2
=60*(1+12%)^1
3
80
80
80
future
value
159.744
now we
have to use financial calculator to compute the MIRR
Put in
calcluator
PV
-100
PMT
0
FV
159.744
N
3
Compute
I
16.90%
therefore
MIRR of L =
16.90%
we have
to first compute the future value of the cash flow from year 1 to 3
for project S
Year
project
S
Future
value
1
70
87.808
=70*(1+12%)^2
2
50
56
=50*(1+12%)^1
3
20
20
20
future
value
163.808
now we
have to use financial calculator to compute the MIRR
Put in
calcluator
PV
-100
PMT
0
FV
163.808
N
3
Compute
I
17.88%
therefore
MIRR of S =
17.88%
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