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 MIRR can be less than the WACC (and even negative), in which case it will be rejected. WACC: 12.25% Year 0 1 2 3 4 Cash flows -$850 $300 $320 $340 $360

Using the modified IRR formula, the MIRR on the investment with the cash flow stated is 16.56%

The Modified Internal Rate of Return is calculated thus :

Terminal value = Summation of the cash flows from year 1 to year 4 :

We can then calculate the MIRR thus :

%

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MIRR = 16.6%

Explanation:

We have the formula to calculate the MIRR of the project:

+)

In which:

The future value of net cash inflow Year i = Cash inflow × (1 + Cost of capital)^(number of years reinvested)

= Cash inflow × 1.1225^(n - i)

+) = $424.327

+) = $403.202

+) = $381.65

+) = $360

=> Terminal Value = 424.327 + 403.202 + 381.65 + 360 = $1569.179

Present Value Year i =

The project requires the initial investment = - $850 and there are no cash outflows during 4 years of the project

=> PV of the project = PV Year 0 = = 850

=> MIRR = =  0.166 = 16.6%

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