A firm is considering two mutually exclusive projects, X and Y, with t
QUESTION
A firm is considering two mutually exclusive projects, X and Y, with the following cash flows:.0.1..2.34Project X.-$1,000..$100$280..$370.$700Project Y.-$1,000..$1,100$110$50..$55The projects are equally risky, and their WACC
The Modified Internal Rate of Return (MIRR) is a financial measure to find out the attractiveness of the investment. It is used in capital budgeting to rank alternative investments of equal size. MIRR (Modified internal rate of return is given by formula = ((FV of all Positive Cash Flows)/PV of all negative cash flows))^1/n 1) The future value of net cash inflows and the present value of all cash outflows are calculated in the table below: Project X Project Y
r $ Year $ 0 1000 0 1000 Future Values of Cash Flows Future Values of Cash Flows 1 100 112.00 1 1000 1,120.00 2 300 376.32 2 100 125.44 3 400 561.97 3 50 70.25 4 700 1,101.46 4 50 78.68 2,151.75 1,394.36 MIRR 21.12% 8.67% From the table above it is clear that project X is more attractive from MIRR point of view.
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