Hi
Sir in part a mirr comes out to be 2.8% and cost of capital is 11% and NPV is negative , so it is written in the explantion that MIRR supports NPV since project would generate a negative rate of returnof 2.8 % per year,well below the required rate of 11%
I do not understand the explanation.plz explain
thank you
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sleepon bpp q89 (12/05)
11y ago#1Have you watched the lecture on MIRR?
The MIRR is less than the cost of capital - so the project is not worthwhile.
The NPV is negative - so again, the project is not worthwhile.
MIRR and NPV both lead to the same conclusion. (The ordinary IRR does not always lead to the same conclusion as NPV, which is one of the problems with the ordinary IRR)
Im unable to calculate mirr in this ques thru the standard formula given in exam (203/426)^(1÷5) multiply by 1.11 minus 1. Plz guide me y dis formula is not applicable here as it was there in neptune ques?
10y ago#3The PV of the return phase is 37.5 + 29.1 + 22.9 + 200.6 = 290.1
The PV of the investment phase is 200 + 226.6 = 426.6
Putting it in the formula gives:
(fifth root of (290.1/426.6) x 1.11) - 1 = 0.0276, or 2.76%
Right :)
10y ago#5Great :-)
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