Can we find MIRR given the following cash flows from an investment?
To determine the Modified Internal Rate of Return (MIRR) for the investment, we need to set up the correct equation based on the given cash flows. The MIRR is a financial indicator that takes into account both the outgoing and incoming cash flows of an investment, providing a more comprehensive measure of its profitability.
The MIRR equation involves discounting the outgoing cash flows (negative cash flows) to the present value and compounding the incoming cash flows (positive cash flows) to the future value. The MIRR is then calculated by finding the discount rate that equates the present value of the outgoing cash flows with the future value of the incoming cash flows.
In this case, the cash flows from the investment are provided for the years 2023 to 2027, as follows:
- 2023: $2,000,000
- 2024: $4,000,000
- 2025: $5,000,000
- 2026: $3,000,000
- 2027: $1,000,000
By setting up the correct equation, considering the outgoing and incoming cash flows, and solving for the discount rate, we can find the Modified Internal Rate of Return (MIRR) for the investment.
To calculate the MIRR, the formula is:
MIRR = ((FV of positive cash flows / PV of negative cash flows) ^ (1/n)) - 1
Where:
- FV = Future Value
- PV = Present Value
- n = Number of periods
By plugging in the cash flow values and solving for the MIRR, we can determine the profitability of the investment.