Question
Suppose a firm is considering two mutually exclusive equally risky projects with WACC = 15% and the following cash flows: 0 1 2 3 4
Suppose a firm is considering two mutually exclusive equally risky projects with WACC = 15% and the following cash flows:
| 0 | 1 | 2 | 3 | 4 | |
|---|---|---|---|---|---|
| Project X | -$1,000 | $800 | $750 | $650 | $500 |
| Project Y | -$1,000 | $1,050 | $700 | $600 | $450 |
How can you calculate the MIRR for the project that maximizes shareholder value?
Assuming that your professional financial calculator is able to calculate the MIRR, use the following table to indicate which values you should enter to compute the MIRR for Project X.
|
| CF0CF0 | CF1CF1 | CF2CF2 | CF3CF3 | CF4CF4 | |||
|---|---|---|---|---|---|---|---|---|
| Input |
|
| ||||||
| Keystroke | Arrow down | Arrow down | Arrow down | Arrow down | Arrow down | IRR | I | MIRR |
| Output |
Suppose that your calculator does not have the ability to compute the MIRR. Here are the steps you need to take to calculate the MIRR for Project Y.
1. Use the following table to indicate which values you should enter to compute the net present value (NPV) of all cash inflows.
|
| CF0CF0 | CF1CF1 | CF2CF2 | CF3CF3 | CF4CF4 | ||
|---|---|---|---|---|---|---|---|
| Input |
|
| |||||
| Keystroke | Arrow down | Arrow down | Arrow down | Arrow down | Arrow down | I/Y | NPV |
| Output |
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