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Mass Company is investing in a giant crane. It is expected to cost $6 million in initial investment, and it is expected to generate an end-of-year cash flow of $3 million each year for three years. At the end of the fourth year, there will be a $1 million disposal cost. Calculate the MIRR for the project if the cost of capital is 12 percent.

Respuesta :

ogorwyne

Answer:

17.8%

Explanation:

the formular for MIRR

= [tex]\frac{FVcashinflow}{PVcashoutflow } ^{1/n} -1[/tex]

we solve for the future value =

3(1+0.12)³ + 3(1+0.12)² + 3(1+0.12) =

4.2147 + 3.7632 + 3.36

= 11.3379

we also calculate present value

= [tex]6-[\frac{1}{1+0.12}] ^{4}[/tex]

= 6-0.6355

= 5.3645 million

MIRR = [tex][\frac{11.3379}{5.3645}] ^{1/4}[/tex]-1

= 0.178

= 17.8%

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