what is the MIRR of cash flows of -900, 820,400,510,-180,and 200 at the rate of 16%?
To calculate the Modified Internal Rate of Return (MIRR), you need to follow a step-by-step process:
Step 1: Calculate the present value (PV) of negative cash flows.
In this case, the negative cash flow is -$900. To calculate the PV, divide this amount by (1+r), where r is the discount rate as a decimal.
PV = -$900 / (1 + 0.16)
Step 2: Calculate the future value (FV) of positive cash flows.
In this case, the positive cash flows are $820, $400, $510, -$180, and $200. To calculate the FV, you need to compound each cash flow to the end of the investment period, which is the last year. Use the formula FV = CF * (1+r)^n, where CF is the cash flow and n is the number of years.
FV = $820 * (1 + 0.16)^4 + $400 * (1 + 0.16)^3 + $510 * (1 + 0.16)^2 - $180 * (1 + 0.16)^1 + $200 * (1 + 0.16)^0
Step 3: Calculate the MIRR.
The MIRR is calculated using the formula:
MIRR = (FV of positive cash flows / PV of negative cash flows)^(1/n) - 1
In this case, n is the number of years, which is 4.
MIRR = (FV / PV)^(1/4) - 1
Now plug the values into the formula to find the MIRR.