Final answer:
To determine the MIRR for a project with specific cash inflows and outflows, we discount negative cash flows at the finance rate and compound positive cash flows at the reinvestment rate. The actual MIRR calculation cannot be completed without specifying the reinvestment rate for positive cash flows.
Step-by-step explanation:
The Modified Internal Rate of Return (MIRR) for a project takes into account the initial cost, the cash flows during the project, and the terminal cash flows or costs. To calculate the MIRR at a discount rate of 13.5 percent for this project, we must adjust the future cash flows at the finance rate (13.5%) and assume all positive cash flows are reinvested at the reinvestment rate.
The project entails a $41,200 initial investment, produces cash flows of $23,500 in Year 1 and $46,000 in Year 2, and incurs a cost of $5,000 to end the project in Year 3. The cash flows need to be adjusted for the discount rate provided. However, the question does not specify a reinvestment rate for the positive cash flows, so we are unable to calculate the exact MIRR without this information. Typically, to calculate MIRR, you would discount negative cash flows at the finance rate and compound positive cash flows to the end of the project period at the reinvestment rate. The MIRR is then calculated using these adjusted cash flows, equalizing them with the initial investment and solving for the rate.