11-Video Lesson - The Basics of Capital Budgeting Follow these steps describing how the MIRR is calculated to complete the table for project x. - The Project x has just one outflow: 51,000 at t=0, this means that it is not discounted and its PV=51,000. (Note: if the project has more than one outfiow, you need to find the PV at t=0 for each one and sum them to arrive at the PV of total costs for use in the MJRR calculation.) - You need to find the future valuehof each infiow compounded at the WaCC but to the terminal year, which is the Year the last inflow is: received. (Hint: Assume that cash flows are reinvested at the WACC.) - You have the cost at t=0,SI,000, and the FV. There is some discount rate that will cause the PV of the terminal value to equal the cost. That interest rate is defined as the MirR. (Note: Using your financial calculatot, enter N=4,PV=1,000,PMT=0, and FV. Then when you press the IYR key, you get the MIRR. 5 oene calculators have a built-in MIRR function that streamlines the process. in Excel, you can use either the RATE function or MIRR function to calculate the MirR.) Complete the following table. M/RR=$1.1256 Suppose a firm is considering two mutually exclusive equally risky projects with WACC =12% and the following cash flows: How can you caiculate the MIRR for the project that maximizes shareholder value? Assuming that your professional financial caiculator is able to calculate the MIRR, use the following table to indicate which values you should enter to compute the MIRR for Project x Suppose that your calculator does not have the ability to compute the MIRR. Here are the steps you feed to take to caiculate the MIRR for Project Y. 1. Use the following table to indicate which values you should cnter to compute the met present value. (NPV) ar all cash inflnwe 1. Use the following table to indicate which values you should enter to compute the net present value (NPV) of all cash infliows. 2. Use the following table to indkate which values you should enter to compute the future valye of the NPV: 3. Use the following rable to indicate which values you should enter to compute the MIRR. Finally, you can answer the question: The MIRA far the project maximizes shareholder value. Steg 3: Practice: Modified Interaal Rate of Return Now it's time far you to prectice what you've learned. Now it's time for you to practice what you've learned. Suppose a firm is considering two mutually excluslve equally risky projects with wacC = 12% and the following cosh flows: What is the MIRR of the project that maximizes the shareholder return? 28. 31% 29.53% 30.62% 41.195