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TL Lumber is evaluating a project with cash flows of −$12,800, $7,400, $11,600, and −$3,200 for Years 0 to 3, respectively. Given an interest rate of 8 percent, what is the MIRR using the discounted approach? Multiple Choice 15.40 percent 14.36 percent 19.23 percent 14.08 percent 13.25 percent

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Answer:11.82%

Explanation:

Yr C/ flow int Amount

1 7400. 1.08^2 8631.

2 11600. 1.08^1. 12,528

3 -3,200. 1 -3,200

Total reinvested amount

17959

MIRR=modified internal rate of return=

(17,959/12,800)^1/3-1

=1.1182-1=0.1182=11.82%

Answer:The answer is 14.36%

Explanation:

In the discounting approach we find the value of all cash flow to time 0 at the discount rate .The cash inflows will remain the same at the time they occur .Therefore, the discounting cash outflow to time 0 we find

MIRR = 0 = (-$12,800 - $3,200/1.08∧3) + 7,400/(1 + MIRR) + $11,600/ (1 + MIRR)∧2

Using the trial and error to find the root of the equation ,we find that

MIRR = 0.1436 × 100

= 14.36%