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Which project has the higher MIRR?

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"Your company is considering two mutually exclusive projects, X and Y, whose costs and cash flows are shown below:

Year X Y
0 -$ 5,000 - $5,000
1 1,000 4,500
2 1,500 1,500
3 2,000 1,000
4 4,000 500

The projects are equally risky, and their cost of capital is 12%. You must make a recommendation, and you must base it on the modified IRR (MIRR). Which project has the higher MIRR?"

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Solution Summary

See excel attached. MIRR typically gives a reinvestment rate that differences from cost of capital. Since it did not here, I used cost of capital for both.

Solution provided by:
Carol Sargent, PhD
Education
  • BSc, University of Virginia
  • MSc, University of Virginia
  • PhD, Georgia State University
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