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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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4.0 Ratings (761 Votes)

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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