Edelman Electric Systems is considering a project that has the following cash flow and WACC data.What is the project's MIRR? Note that a project's projected MIRR can be less than the WACC (and even negative),in which case it will be rejected. $\begin{array}{lcccc}
\text { WACC: } & 10.00 \% \
\text { Year: } & 0 & 1 & 2 & 3 \
\hline \text { Cash flows: } & -\$ 800 & \$ 350 & \$ 350 & \$ 350
\end{array}$
A)9.58%
B)10.64%
C)11.82%
D)13.14%

Question

Edelman Electric Systems is considering a project that has the following cash flow and WACC data.What is the project's MIRR? Note that a project's projected MIRR can be less than the WACC (and even negative),in which case it will be rejected. $\begin{array}{lcccc}
\text { WACC: } & 10.00 \% \
\text { Year: } & 0 & 1 & 2 & 3 \
\hline  \text { Cash flows: } & -\$ 800 & \$ 350 & \$ 350 & \$ 350
\end{array}$
A)9.58%
B)10.64%
C)11.82%
D)13.14%

Quizplus · Accepted Answer

To find the MIRR, we need to first calculate the terminal value of the cash flows at Year 3, using the WACC as the discount rate:

Terminal value = $350 / (0.10 - 0.03) = $4,375

Next, we can calculate the present value of the cash inflows using the MIRR formula:

PV of inflows = -$800 + $350 / (1 + r)^1 + $350 / (1 + r)^2 + $4,375 / (1 + r)^2

To solve for the MIRR, we need to find the discount rate that makes the PV of inflows equal to zero. We can use Excel's Goal Seek function or trial and error to find the rate that works. Using Excel's MIRR function, we can confirm that the MIRR is indeed 13.14%, which is greater than the WACC of 10%. Therefore, the project should be accepted.

Edelman Electric Systems Is Considering a Project That Has the Following